PROBLEMS  IN  ACCOUNTING 


DAVID  FRIDAY 


PROBLEMS  IN  ACCOUNTING 


DAVID  FRIDAY 


ANN  ARBOR 
1916 


COPYRIGHT,  1915 
BY  DAVID  FRIDAY 


THE  ANN  ARBOR  PRESS 
ANN  ARBOR 


PREFACE 

This  text  was  originally  intended  for  the  use  of  students  in  the 
various  courses  in  Accounting  in  the  University  of  Michigan.  It 
attempts  to  place  before  the  student  in  the  form  of  problems  the 
more  important  types  of  concrete  situations  which  present  the  neces- 
sity for  accounting  analysis. 


357348 


Problems  in  Accounting 


CHAPTERS  II  AND  III 

i. 

Classify  the  following  transactions  into  debit  and  credit  items : 

(a)  The  book-keeper's  salary  is  paid  in  cash,  $20. 

(b)  Coal  to  the  amount  of  $60  is  purchased. 

(c)  A  customer  pays  his  account,  $75. 

(d)  The  firm  buys  goods,  $400,  on  a  6oday  note. 

(e)  The  firm  borrows  $500  from  a  bank  on  a  6o-day  note. 

(f)  The  firm  settles  an  open  account  of  $200  with  a  note. 

(g)  The  property  of  the  firm  is  mortgaged  for  $4,000. 
(h)  Interest  is  paid  for  capital-service  rendered,  $100. 

•  (i)  Finished  goods  to  the  amount  of  $600  are  sold  on  account  to 
various  parties. 

(j)  The  accounts  mentioned  in  (i)  are  paid  in  cash. 

(k)  Goods  are  damaged  by  fire,  $200. 

(1)   The  plant  depreciates  in  value,  $600. 

(m)  Fuel  is  consumed,  $100. 

(n)  The  machinery  is  repaired,  $50. 

(o)  Cash,  $200,  is  paid  for  labor  services. 

(p)  An  insurance  premium  of  $100  is  paid  in  cash. 

(q)  Taxes  are  paid, '$75. 

(r)  Capital  stock  to  the  amount  of  $25,000  is  issued  for  cash. 

(s)  $10,000  of  the  above  stock  is  exchanged  for  $10,000  in 
first  mortgage  bonds. 

(t)  The  bonds  mentioned  in  (s)  are  paid  with  cash,  $10,000. 

(u)  Miscellaneous  services  are  purchased  with  cash,  $100. 

(v)  Miscellaneous  services  are  consumed,  $100. 

(w)  The  firm  gives  $100  in  cash  to  charities. 

(x)  Dividends  are  paid  in  cash,  $500. 

(y)  $400  is  received  for  rent  of  a  portion  of  the  factory. 

(z)  The  firm  receives  $30  in  interest  on  its  bank  deposits. 

2. 

Journalize  the  following  transactions.  Open  the  proper  ledger 
accounts  and  post. 


6  PROBLEMS  IN  ACCOUNTING 

(a)  R.  A.  Taylor  begins  business  with  a  capital  (all  in  cash)  of 
$10,000. 

(b)  Mr.  Taylor  rents  a  store  building,  paying  3  months'  rent 
($180)  in  advance. 

(c)  Merchandise  is  purchased,  $3,000.     Terms:     $1,500  cash, 
and  a  6o-day  note  for  the  balance. 

(d)  Second-hand  fixtures  are  purchased  for  $500  in  cash. 

(e)  Stock  and  fixtures  are  insured  for  one  year;  premium,  $25. 

(f)  Cash  sales  are  made,  $300. 

(g)  Merchandise  is  sold  on  acount  to  J.  R.  Walters  for  $250. 
(h)  Cash  is  paid  for  advertising,  $10. 

(i)  The  clerk's  salary  is  paid,  $15. 

(j)  Merchandise  is  purchased  on  account  from  E.  P.  Smith  Co. 
to  the  amount  of  $500. 

(k)  Merchandise  is  sold  for  cash,  $350. 

(1)  Miscellaneous  services  are  purchased  with  cash,  $40. 

(m)  J.  R.  Walters  returns  $50  of  merchandise  as  unsatisfactory. 

(n)  Merchandise  is  sold  on  account  to  F.  A.  Talbot,  $600. 

(o)  Mr.  Taylor  draws  $300  jinpash  for  his  personal  use. 

(p)  The  note  mentioned  in  (c)  is  paid  and  interest  for  20  days, 

$5. 

(q)  Merchandise  is  stolen,  $200. 

(r)   Interest  is  received  on  bank  deposit,  $15. 

(s)  Mr.  Taylor  buys  the  building  he  has  been  renting  for  $10,- 
ooo.  Payment  is  made  as  follows:  Cash,  $3,000;  the  former  own- 
er of  the  building  assumes  F.  A.  Talbot's  account,  $600;  a  mort- 
gage for  $6,280  is  given  on  building,  stock,  and  fixtures ;  two  months 
prepaid  rent,  $120,  is  allowed  as  part  payment. 


Bought  from  Howard  Houck  drugs  invoiced  at  $430.  In  pay- 
ment we  transferred  to  him  an  account  which  we  held  against 
G.  Reed  $115,  gave  him  our  (So-day  note  for  $100,  and  paid  him  the 
balance  in  cash.  Journalize. 

4- 

T.  R.  McCracken  owed  me  $1200.  I  offered  a  discount  of  2l/2% 
for  cash.  Not  having  the  ready  money  he  discounted  his  note  at  the 
bank  for  sixty  days  at  the  rate  of  6%,  the  note  producing  the  sum 
required  to  discount  my  claim.  Give  the  entries  as  they  would  appear 
on  McCracken's  books. 


PROBLEMS  IN  ACCOUNTING  7 

5- 

Mr.  X  called  at  my  office  today  and  presented  a  note  signed  by 
me  for  $187.50.  This  note  had  been  sold  to  Mr.  X  by  Mr.  Y,  in 
whose  favor  it  had  been  originally  drawn.  After  satisfying  myself 
that  the  note  was  properly  indorsed,  and  was  due  today,  I  gave  Mr.  X 
my  check  for  the  amount.  Entries  on  my  books? 

6. 

A  merchant  draws  a  draft  of  $1,000  at  four  months  on  a  cus- 
tomer who  owes  him  on  open  account,  and  the  draft  is  accepted  on 
February  2,  1909.  On  March  13,  1909,  he  discounts  the  draft  at  a 
bank  at  6%  per  annum.  What  entries  should  be  made  on  the  mer- 
chant's books  properly  to  record  the  transactions  ? 

7- 

A  owed  B  $1,000  and  B  draws  on  him  for  the  account  at  60  days. 
The  draft  is  accepted  by  A,  whereupon  B  takes  it  to  the  bank  for 
discount.  The  bank  discounts  the  paper  57  days  before  maturity,  at 
6%  per  annum.  Show  the  entries  you  would  make  on  the  books 
of  B. 

8. 

Smith  &  Company  draw  on  Jones  &  Company  for  an  account  of 
$1,500,  allowing  i%  discount.  At  maturity  the  acceptors  borrow 
from  the  drawers  $500  to  assist  them  in  meeting  the  draft,  which  is, 
however,  finally  allowed  to  be  returned.  Jones  &  Company  repay 
$300  of  the  loan  of  $500. 

Show  the  ledger  account  on  the  books  of  Smith  &  Company  after 
the  transactions  are  completed. 

9- 

A  has  exhausted  his  credit  with  B.  He  needs  further  accommo- 
dation to  the  extent  of  $2,500,  to  obtain  which  he  gives  B  a  three 
months  draft  on  C  for  $2,500.  This  is  $1,000  more  than  C  owes  A. 
To  adjust  this  difference  C  draws  on  A  at  four  months  for  $1,000. 
Assuming  that  the  drafts  have  been  accepted  by  the  various  parties, 
state  what  the  journal  entries  would  be  on  the  books  of  each. 

10. 

The  Dayton  Plumbing  Company  has  called  our  attention  to  an 
error  in  our  bill  of  September  22,  in  which  we  charged  them  $1.95 
each  for  six  cast  iron  steel  sinks.  On  September  16  we  had  quoted 
this  concern  these  sinks  at  $1.45  each.  The  bookkeeper  is  accord- 
ingly instructed  to  send  a  credit  memorandum  for  the  amount  of  the 
over-charge.  Make  the  proper  journal  entries. 


8  PROBLEMS  IN  ACCOUNTING 

ii. 

On  March  28  we  purchased  from  the  Standard  Sanitary  Manu- 
facturing Company  6  Class  "A"  Enameled  Iron  Bath  Tubs  at  $23.50 
each.  These  tubs  were  shipped  to  the  Morgantown  Supply  Company 
on  April  8  and  billed  to  them  at  $28.00  each.  A  few  days  later  we 
received  a  letter  from  our  customer  stating  that  two  of  the  tubs 
which  we  had  sent  were  Class  "B"  instead  of  Class  "A."  They  stated 
that  they  were  willing  to  keep  the  tubs  if  proper  allowance  in  price 
were  made.  A  letter  from  our  salesman  in  this  territory  corroborated 
the  customer's  statement,  and  we  accordingly  sent  a  credit  memor- 
andum for  $20.00  to  correct  the  price  of  the  tubs.  The  matter  was 
also  taken  up  with  the  manufacturers  and  we  received  their  credit 
memorandum  for  $8.00.  Prepare  the  proper  journal  entries  on  our 
books. 

12. 

A  carload  of  coal  purchased  for  cash  from  the  Consolidated  Coal 
Company  proved  of  inferior  quality.  We  received  a  check  for  $31.65 
as  a  rebate.  Journalize. 


What  entries  should  an  executor  make  on  taking  charge  of  a 
property  which  shows  on  the  books  of  the  deceased,  and  is  appraised 
at  the  same  figures,  as  follows  :  — 

Real  Estate  (bequeathed  to  widow)  .......  ,  .  .$50,000 

Accrued  rentals  on  real  estate  ..............        100 

Bonds  owned  ..............................   J/^o 

Accrued  interest  on  bonds  ..................        185 

Bills   Receivable  ...........................     7,000 

Tradesman's  bills  ....................  ......        450 

Household  goods,  etc  .......................     5,ooo 

What  entries  should  be  made  on  collecting  rental  amounting  to 
$200  and  interest  amounting  to  $235  ? 

14. 

(a)  What  is  the  distinction  between  "Interest  and  Discount" 
and  "Mdse  Discount"  accounts?    What  is  Trade  Discount? 

(b)  A  bill  of  goods  sold  by  A.  A.  Co.  to  T.  Jones  is  listed  at 
$1,000  with  trade  discount  of  30%  allowed.    The  terms  offered  on 
bill  are  2%  off  if  paid  in  10  days,  net  if  paid  in  30  days.    Supposing 
bill  to  be  paid  at  once,  give  journal  entries  on  the  books  of  the  seller 
for  the  transaction. 


PROBLEMS  IN  ACCOUNTING  9 

(c)  Suppose  instead  that  bill  is  settled  at  end  of  30  days  with  a 
6o-day  non-interest-bearing  note  which  is  at  once  discounted  at  the 
bank  at  5%.  Give  journal  entries  on  the  books  of  the  seller. 


I  buy  a  house  and  lot  of  R.  M.  Brown,  paying  cash  $3,500,  and 
assuming  a  mortgage  of  $1,200,  with  interest  at  5^2%,  4  months  ac- 
crued. The  premises  are  rented  at  $300  per  year,  payable  semi-an- 
nually,  of  which  3  months'  rent  has  accrued.  My  entries  at  the  time 
of  buying,  of  receiving  rent  at  the  end  of  3  months  from  date,  and 
paying  interest  in  2  months?  Show  interest  and  rent  accounts  as 
they  appear  four  months  from  date,  assuming  no  other  transactions. 

16. 

On  January  I  we  sent  George  Young  our  check  for  $142.56,  in 
payment  of  our  note  of  $125  and  accrued  interest.  It  is  now  found 
that  a  mistake  was  made  in  computing  the  interest  and  that  we 
should  have  paid  but  $13.44  interest.  Today  we  receive  Mr.  Young's 
check  for  the  difference.  Journalize. 


A  owed  B  for  goods  purchased  amounting  to  $500,  subject  to  a 
discount  of  10%.  B  draws  on  A  at  30  days  sight  for  the  amount  of 
the  bill,  less  12^2%  discount,  and  A  accepted  the  draft.  At  maturity 
A  sends  B  his  check  for  the  amount  of  the  acceptance.  Two  weeks 
later  B  discovers  the  mistake  and  sends  A  a  debit  memorandum  for 
the  difference.  A  sends  B  his  check  for  the  amount.  Give  the 
journal  entries  (i)  on  A's  books  and  (2)  on  B's  books. 

18. 

We  have  donated  supplies  to  the  estimated  value  of  $100  to  the 
Belgian  Relief  Fund.  Journalize. 

19. 

On  December  20  we  sold  and  delivered  to  the  Fort  Pitt  Supply 
Company  200  boxes  of  cigars  at  $7.50  per  box.  These  cigars  we 
inadvertently  charged  to  T.  R.  Goldstick  &  Bro.,  who  sent  us  their 
check  for  the  amount,  not  noticing  the  mistake.  The  mistake  is  dis- 
covered two  months  later,  and  rectified.  Give  the  proper  correcting 
entries. 


io  PROBLEMS  IN  ACCOUNTING 

20. 

We  have  sold  to  T.  R.  Burton  io  shares  of  Pennsylvania  Railroad 
stock  at  112.  He  pays  us  $800  cash  and  gives  us  his  60  day  note  for 
the  balance.  Our  bookkeeper  made  the  following  entry,  which  was 
posted : 

Cash,  800 

Investments  320 

T.  R.  Burton  800 

Bills  Pay.  320 

Make  the  proper  correcting  entries. 

21. 

One  of  our  delivery  trucks,  valued  at  $1600,  has  been  stolen.  On 
the  truck  at  the  time  there  was  general  merchandise  to  the  value  of 
$117.  What  entry  shall  we  make  ? 

22. 

We  have  deposited  at  the  First  National  Bank  for  credit,  coupons 
for  the  quarterly  interest  on  the  $20^000  Union  Pacific  First  and 
Refunding  5*3  which  our  firm  owns.  "Cash  to  Investments"  is  the 
way  our  bookkeeper  records  the  transaction.  What  should  the  entry 
have  been  ? 

23- 

A  check  for  $26.50  is  received  today  from  the  Reading  Railroad 
Company  for  losses  sustained  by  us  in  a  recent  shipment  of  oranges. 
Journalize. 

24. 

The  Dime  Savings  Bank  holds  our  note  for  $2,000,  maturing 
today.  We  take  up  the  note,  with  accrued  interest  amounting  to 
$200,  and  give  a  new  note  at  sixty  days  for  the  entire  amount.  Jour- 
nalize. 

25- 

The  June  salary  of  our  stenographer,  amounting  to  $75,  is  paid 
with  an  order  on  the  Field  Company  for  Merchandise  to  the  value  of 
$25.00  and  our  check  for  the  balance.  Journalize. 

26. 

On  the  books  of  the  A.  B.  C.  Corporation  no  separate  account  has 
heretofore  been  kept  for  postage.  The  amount  of  postage  already 


PROBLEMS  IN  ACCOUNTING  n 

charged  in  the  Expense  account  is  found  to  be  $65.30.    In  order  to- 
transfer  the  account  the  bookkeeper  makes  the  following  entry : 
Expense  65.30 

Postage  65.30 

Is  this  entry  correct?  If  not,  make  a  journalization  which  will 
make  the  desired  correction. 

27. 

The  Milligan-Dible  Company  award  a  contract  for  an  apartment 
house,  the  contract  price  being  $125,000,  payable  in  five  installments 
of  $25,000  each.  The  first  installment  is  to  be  paid  before  work 
begins,  the  second  installment  when  one-fifth  of  the  job  is  completed 
and  accepted,  the  third  installment  when  the  roof  has  been  put  on, 
the  fourth  installment  when  the  plastering  has  been  finished  and  the 
fifth  and  last  installment  when  the  job  has  been  completed  and  the 
building  accepted.  The  owners  wish  to  record  the  interest  lost  on 
these  advances  as  a  part  of  the  cost  of  the  building.  The  following 
entry  is  made : 

Interest,  $1,000 

Bellefield  Apartments  $1,000 

If  this  entry  is  not  correct,  what  journalization  will  correct  the 
error? 

28. 

In  April  you  sell  three  hundred  customers  bills  of  goods  amount- 
ing to  $30,000,  and  none  pay  immediate  cash.  You  collect  bills 
amounting  to  $25,000  from  two  hundred  seventy  customers,  of  whom 
two  hundred  fifty  take  $750  discounts  offered  for  early  payment. 
You  buy  bills  of  goods,  amounting  to  $15,000,  of  fifteen  creditors 
paying  none  in  immediate  cash,  you  pay  nineteen  creditors  cash, 
amounting  to  $19,000,  and  take  a  discount  in  each  case,  amounting  in- 
all  to  $600.  You  make  forty  cash  payments  for  expenses,  amounting 
to  $4000. 

Into  what  book  should  you  enter  each  class  of  transaction  indi- 
cated above,  and  how  many  postings  should  be  made  from  each 
book? 

Supposing  you  have  subordinate  ledgers  for  customers  and  for 
creditors,  what  would  your  general  ledger  show  for  the  items  above 
(show  a  rough  posting  for  each  item  posted  to  the  general  ledger)  ? 

29. 

Rule  and  title  five  columns  of  a  petty  cash  book  in  addition  to 
the  descriptive  column,  and  make  an  illustrative  entry  for  and  in 
each  distribution  column. 


12  PROBLEMS  IN  ACCOUNTING 

30. 

State  fully  how  the  disbursements  entered  in  a  petty  cash  book 
should  be  carried  to  the  controlling  account  in  the  general  ledger  and 
to  the  detail  accounts  in  the  expense  ledger. 

Si- 

What  is  a  controlling  account  ?  Give  three  examples.  How  are 
postings  made  to  controlling  accounts?  With  what  must  the  bal- 
ance of  a  controlling  account  coincide  ? 

32. 

A  customer  says  that  a  bill  which  he  has  received  from  you  repre- 
sents goods  for  which  he  does  not  owe.  He  fails  to  state  whether 
the  goods  were  never  purchased,  were  purchased  but  returned,  or 
were  purchased  and  paid  for.  What  process  should  you  go  through, 
(i.  e.,  what  books  should  you  consult, — naming  them  in  order, — and 
what  should  you  look  for)  to  determine  the  facts? 

^A 
33. 

Enter  the  following  transactions  in  a  journal  having  special 
columns  for  cash  received  and  paid,  post  to  ledger. 

Feb.     i.     R.  M.  Jones  invested  in  business  $2500.00  in  cash. 

Feb.     i.     Paid  cash  for  February  rent,  $75. 

Feb.  2.  Bought  from  J.  N.  Price  on  account  merchandise  in- 
voicing at  $560. 

Feb.     3.     Sold  merchandise  for  cash,  $56.50. 

Feb.  5.  Issued  our  note  for  $150  due  in  30  days  at  6%  in 
favor  of  J.  N.  Price,  to  be  applied  on  account. 

Feb.     6.     Sold  to  R.   B.  Rodman  on  account  goods  billed  at 

$73-50. 

Feb.  8.  Bought  furniture  and  fixtures,  including  glass  show- 
case for  store,  $750.  Paid  cash. 

Feb.     9.     Paid  J.  N.  Price  $125  in  cash,  on  account. 

Feb.  10.     R.  B.  Rodman  paid  $45  on  account,  in  cash. 

Feb.  ii.     R.  M.  Jones  took  $25  in  cash  to  pay  a  personal  bill. 

Feb.  12.     Sold  to  T.  R.  Martin  merchandise,  $165.50,  for  cash. 

Feb.  12.     Paid  in  cash  for  750  two-cent  stamps. 

Feb.  16.  Sold  three  glass  showcases,  second-hand,  to  T.  J. 
Murray  for  $110.  He  paid  cash. 


PROBLEMS  IN  ACCOUNTING  13. 

Feb.  1 8.  Accommodated  a  friend  with  100  two  cent  stamps,  for 
which  he  paid  cash. 

Feb.  19.  R.  M.  Jones  invested  $2,000  more  in  cash  in  the  bus- 
iness. 

Feb.  20.  Sold  to  B.  M.  Miller  on  account,  goods  invoiced  at 
$135- 

34. 

Enter  the  following  transactions  in  the  cash  book  and  the  journal. 
Make  special  columns  in  the  journal  for  merchandise  debits  and 
credits. 

Oct.  i.  J.  B.  Preston,  proprietor,  invested  in  business  $5,000- 
in  cash. 

Oct.     i.     Paid  rent  for  October  in  cash,  $70. 

Oct.  2.  Sold  to  Jno.  R.  Thompson,  on  account,  bill  of  goods 
for  $65.50. 

Oct.  2.  Bought  merchandise  from  the  Sterling  Furniture  Co.r 
for  cash,  $276.60. 

Oct.  3.  Sold  merchandise  to  Gus  E.  Ericson,  on  account,. 
$47.50. 

Oct.  4.  Bought  merchandise  for  cash,  Palmer  &  Anderson's 
invoice,  $364.20. 

Oct.  5.  Received  cash  from  Jno.  R.  Thompson,  on  account,. 
$50. 

Oct.  6.  Sold  to  Harry  K.  Feldman,  on  his  lo-day  note  at  6% 
merchandise,  $126.50. 

Oct.  6.  Paid  the  bookkeeper's  salary  for  the  week  ending 
today  in  cash,  $18. 

Oct.  8.  J.  B.  Preston  withdrew  for  his  personal  use  $25  in 
cash. 

Oct.  9.  Sold  to  Geo.  W.  Chambers,  on  account,  $123.75  worth 
of  merchandise. 

Oct.  10.     Received  cash  from  Gus  E.  Ericson,  on  account,  $25, 

Oct.  ii.  Sold  merchandise  to  Jno.  R.  Thompson,  on  account,. 
$98.50. 

Oct.  13.     Paid  the  bookkeeper's  salary  in  cash,  as  on  Oct.  6. 

Oct.  16.  Received  from  Harry  K.  Feldman  his  check  for 
$126.71  to  redeem  his  note  of  Oct.  6,  $126.50,  and  interest  for  10 
days  at  6%,  $.21. 

Oct.  17.  Sold  to  Gus  E.  Ericson,  on  account,  merchandise, 
$76.75. 

Oct.  1 8.     Paid  for  office  stationery  and  envelopes  in  cash,  $7.80. 


14'  PROBLEMS  IN  ACCOUNTING 

Oct.  19.  Sold  to  Geo.  W.  Chambers,  on  account,  merchandise, 
$32.25. 

Oct.  19.  Received  cash  from  Jno.  R.  Thompson,  to  apply  on  ac- 
count, $15.50. 

Oct.  19.  Bought  merchandise  for  cash  from  the  Hoffman  Co., 
their  invoice,  $225.60. 

Oct.  20.     Paid  the  bookkeeper's  salary  in  cash,  as  on  Oct.  6. 

Oct.  22.  Sold  to  F.  N.  Wright  on  his  3O-day  note  at  6%,  bill 
of  goods,  $150.65. 

Oct.  24.  Sold  to  Jno.  R.  Thompson,  on  account,  $137.75, 
merchandise. 

Oct.  25.  Received  from  Gus.  E.  Ericson  cash  to  complete  the 
payment  of  bill  against  him  of  Oct.  3,  $22.50. 

35- 

Enter  the  following  transactions  in  the  journal,  cash  book, 
purchase  book  or  sales  book.  Post,  and  take  a  trail  balance. 

May  I.  Begin  a  general  grocery  business  today,  investing 
cash,  $4,000. 

May     2.     Pay  store  rent  in  cash,  one  month,  $60. 

May  3.  Buy  for  cash,  200  bu.  potatoes  at  $.80 ;  400  Ibs.  butter 
at  $.25. 

May  4.  Buy  of  John  Smith,  on  account,  60  bbls.  flour  at  $4; 
20  bbls.  salt  at  $1.50;  175  Ibs.  lard  at  $.10. 

May  5.  Sell  Albert  Mullin  for  cash,  10  bbls.  flour  at  $4.50;  45 
bu.  potatoes  at  $.80;  2  bbls.  salt  at  $1.75. 

May  6.  Sell  J.  B.  Allen,  on  account,  100  Ibs.  lard  at  $.12; 
1 10  Ibs.  butter  at  $.30 ;  10  bbls.  flour  at  $4.50. 

May     8.     Buy  for  cash  a  set  of  books  for  office  use,  $15. 

May    9.     Pay  John  Smith  cash,  on  account,  $56.40. 

May  10.     Receive  cash  of  J.  B.  Allen,  on  account,  $50. 

May  ii.  Buy  of  James  Witt,  on  account,  5  bbls.  flour  at  $3.50; 
600  Ibs.  of  lard  at  $.08;  500  Ibs.  butter  at  $.20;  250  bu.  potatoes  at 
$.70. 

May  12.  Sell  John  Reed,  on  account,  12  bbls.  flour  at  $4;  100 
Ibs.  lard  at  $.10;  100  Ibs.  butter  at  $.22. 

May  13.  Sell  J.  B.  Allen,  on  account,  70  bu.  potatoes  at  $.75 ; 
6  bbls.  salt  at  $1.70;  100  Ibs.  lard  at  $.12. 

May  15.  Receive  cash  of  John  Reed,  on  account,  $52.50;  pay 
James  Witt  cash,  on  account,  $195. 


PROBLEMS  IN  ACCOUNTING  15 

May  1 6.     Buy  of  John  Smith,  on  account,  40  bbls.  flour  at  $3.50. 

May  17.  Sell  J.  B.  Allen,  on  account,  16  bbls.  flour  at  $4; 
loo  Ibs.  lard  at  $.11. 

May  1 8.  Give  John  Smith  your  note  for  goods  bought  on  the 
i6th;  sell  Robert  Lewis  for  cash,  20  bbls.  flour  at  $4.10;  212  Ibs.  but- 
ter at  $.20 ;  60  bu.  potatoes  at  $.77. 

May  20.  Sell  John  Reed,  on  account  10  bbls.  flour  at  $3.98;  100 
Ibs.  lard  at  $.11 ;  100  Ibs.  butter  at  $.20 ;  10  bbls.  salt  at  $1.68. 

May  22.  Sell  George  Maine  for  cash,  100  Ibs.  lard  at  $.10;  sell 
for  cash,  20  bu.  potatoes  at  $.75. 

May  26.  John  Reed  settles  his  bill  of  the  2Oth ;  pay  your  note  in 
favor  of  John  Randolph. 

May  28.     Pay  clerk  for  one  month,  cash,  $40. 


CHAPTER  IV 

36. 

After  some  correspondence  and  an  interview,  you  buy  from 
Watts  &  Gushing,  Jan.  I,  1914,  a  jobbing  business  in  canned  goods 
and  dried  fruits,  to  be  conducted  in  Rochester,  N.  Y.  You  pay 
therefor  on  the  same  day  $6,756.25  for  stock  on  hand,  $243.75  f°r 
furniture  and  fixtures  and  $1,000  for  the  goodwill  of  the  business. 
(Treat  goodwill  as  an  asset.)  The  payments  are  made  as  follows: 
your  promissory  note  indorsed  by  Peter  Martin  at  six  months,  for 
$3,000  with  interest,  and  the  remainder  in  cash,  which  constitutes 
your  entire  capital. 

Make,  in  proper  form,  the  record  of  the  above  transactions  and 
of  those  that  follow.  Use  journal,  cashbook,  invoice  book  and  sales 
book.  No  postings  of  cash  or  merchandise  are  to  be  made  from  the 
journal.  A  double  page  cashbook  should  be  used,  having  four  money 
columns  on  each  page,  for  convenience  in  handling  Merchandise  Dis- 
count, Merchandise  Sales  to  casual  customers,  and  Expense,  and  for 
the  purpose  of  saving  labor  in  posting.  Keep  no  "Cash  Account"  in 
ledger. 

Jan.  I.     Cash  sales  to  sundry  persons  $29.60. 

Jan.  2.  Cash  sales  to  sundry  persons  $34.  Bought  office  books 
and  stationery  $14.25. 

Jan.  4.  Sold  H.  B.  Eldredge,  Syracuse,  "rush  order,"  100  cases 
perfection  blackberries  @  $1.32.  Terms,  3/10,  n/6o  ($%  off  if  paid 
in  10  days,  net  60  days).  Shipped  by  express,  charges  prepaid  by 
special  request  $22.30  (to  be  entered  on  bill  but  not  subject  to  dis- 
count). 

Jan.  5.  Bought  of  Excelsior  Canning  Co.,  Buffalo,  300  cases 
perf.  blk.  @  $1.10.  Terms,  2/10,  n/6o.  Sold  Lawson  &  Co.,  Elmira, 
50  cases  perf.  com  @  $1.20;  75  cases  of  perf.  peas  @  $1.62.  Terms, 
3/10  n/6o. 

Jan.  6.  Sold  Winthrop  &  Co.,  Binghamton,  100  cases  standard 
cherries  @  $1.32;  50  cases  perf.  peaches  @  $1.98;  100  cases  perf. 
tomatoes  @  $1.08;  25  cases  straw,  jam  @  $2.24.  Terms,  3/10  n/6o. 

Jan.  7.  Sold  E.  A.  Sanford,  Troy,  8  boxes,  4Oolb  diamond 
apples  @  8c ;  10  bx.  50000  diamond  peaches  @  o/r ;  100  cases  perf. 
corn  @  $1.20.  Terms,  draft  at  15  days  date.  Cash  sales  $46.85. 


PROBLEMS  IN  ACCOUNTING  17 

Jan.  9.  Had  draft  on  Sanford  discounted  at  Commercial  Na- 
tional Bank.  (Charge  the  deduction  from  face  of  draft  to  Interest, 
not  to  "Interest  and  Discount,"  which  is  misleading.)  Bought  of 
Excelsior  Canning  Co.  200  cases  perf.  corn  @  $i ;  100  cases  green 
beans  at  $1.15.  Terms,  2/10  n/6o.  Cash  sales  $115.40. 

Jan.  13.  H.  B.  Eldredge  remits  draft  of  Salt  City  National 
Bank,  John  Mason,  cashier,  on  Astor  National  Bank,  N.  Y.  in  pay- 
ment of  bill  of  Jan.  4,  according  to  terms  of  sale,  and  includes  express 
charges  prepaid  on  shipment. 

Jan.  14.  Paid  insurance  premium  on  stock  $16.50.  Bought  for 
cash  10  tons  coal  @  $5.75  for  heating  store.  Sent  Excelsior  Canning 
Co.  my  check  on  Commercial  National  Bank  in  payment  of  invoice  of 
Jan.  5.  Lawson  &  Co.  remit  N.  Y.  draft  for  bill  of  Jan.  5. 

Jan.  15.     Winthrop  &  Co.  remit  N.  Y.  draft  for  bill  of  Jan.  5. 
Cash  sales  $146.70. 

Jan.  16.  Sold  H.  B.  Eldredge  200  cases  perf.  corn  @  $1.20. 
Terms,  3/10  n/6o.  Cash  sales  $43.50. 

Jan.  1 8.  Sent  Excelsior  Canning  Co.  N.  Y.  draft  in  payment  of 
invoice  of  Jan.  9.  Cash  sales  $78.50. 

Jan.  21.  Sold  Jones  &  Baker,  Clean,  50  cases  standard  corn  @ 
8oc;  50  cases  stan.  peas  @  $i.  Cash  sales  $94.65. 

Jan.  25.  Commercial  National  Bank  returns,  unpaid  and  pro- 
tested, the  accepted  draft  on  E.  A.  Sanford,  protest  fees  $1.52.  [See 
transactions  of  Jan.  7  and  Jan.  9.]  Cash  sales  $69.30. 

Jan.  29.  You  are  convinced  by  correspondence  with  E.  A.  San- 
ford and  others,  that  owing  to  a  recent  misfortune  it  is  not  possible 
for  Sanford  to  pay  his  obligation  in  full,  and  you  accept  his  promis- 
sory note  at  30  days  for  $100,  indorsed  by  Truman  Wakeley,  in  full 
settlement  of  the  account. 

Jan.  30.  Paid  rent  of  store  for  January  $45 ;  clerk's  salary 
$50;  printing  $12.50;  telegrams  and  postage  $6.75.  Cash  sales 
$118.25. 

Having  made  all  the  original  entries,  post  the  accounts  and  make 
trial  balance.  Show  through  Loss  and  Gain  account  your  net  capital, 
using  the  following  resource  inventories :  merchandise  $5869.45 ; 
expense  (for  coal  on  hand)  $45.  "Furniture  and  fixtures"  and 
"Goodwill"  stand  unchanged. 


i8  PROBLEMS  IN  ACCOUNTING 

37- 

Dr.  INTEREST  Cr. 

Jan.  4 $20.50  Jan.  10 $48.50 

8 14-63      21 12.16 

17 8.60  31  Inventory 9-44 

28 13.24 

31  Inventory 4.80 

Loss  and  Gain. . .     8.33 


$70.10  $70.10 

Close  the  above  account  and 

(a)  Bring  down  the  proper  amounts  for  Feb.  i. 

(b)  State  which,  if  any,  of  the  above  figures  would  appear  on 
the  Income  Sheet  for  January  ;  and  which  ones,  if  any,  would  appear 
on  the  Balance  Sheet  of  Jan.  31,  and,  whether  on  asset  or  liability 
side,  being  careful  to  give  reason  for  your  decision  in  each  instance. 


If  not  corrected  how  would  the  following  errors  in  bookkep- 
ing  affect  (i)  the  Expense  and  Revenue  Account,  (2)  the  Balance 
Sheet  : 

(a)  A  sum  of  $125  for  freight  paid  for  John  Jones  on 
goods  purchased  by  him  posted  wrongly  to  Purchases  Ac- 
count. 

(b)  A  sale  of  goods  for  $500  posted  to  the  debit  of  Freight 
Account  instead  of  to  the  debit  of  the  purchaser. 

(c)  A  sum  of  $250  received  from  a  customer  entered  as  a 
Cash  Sale  of  $250? 

39- 

What  would  be  the  significance  of  a  change  in  the  trial  balance, 
between  one  month  and  the  next,  of  a  total  increase  of  $30,000 
on  each  side,  if  the  changes  on  the  debit  side  were  in  property  ac- 
counts and  the  changes  on  the  credit  side  were  in  proprietorship  ac- 
counts ? 

What  if  the  changes  on  the  debit  side  were  in  expense  accounts, 
and  on  the  credit  side  were  in  liability  accounts? 

What  if  the  changes  on  both  sides  were  in  property  and  liability 
accounts  ? 


PROBLEMS  IN  ACCOUNTING  19 

40. 

State  how  the  following  differ:    a  trial  balance;  and  a  balance 
sheet. 

41. 

The  following  trial  balance  is  handed  you,  with  the  request  that 
you  prepare  an  expense  and  revenue  account  and  a  balance  sheet : 

A  B's  capital $20,000.00 

A  B's  personal  account $  1,000.00 

Bank  of  North  America 600.00 

Cash  in  hand 90.00 

Merchandise  account 8,600.00 

Repair  account &7-5° 

Bills  receivable 6,400.00 

Bills  payable 4,000.00 

Real  estate 1,350.00 

Bank  stock 1,566.00 

General  expenses 1,860.00 

Freight 1,000.00 

Accounts  receivable 8,000.00 

Accounts  payable 10,000.00 

Profit  and  loss 3,446.50 


$34,000.00    $34,000.00 

If  all  the  information  required  is  not  presented  in  this  trial  bal- 
ance, supply  what  is  wanting  and  submit  the  statements  called  for. 

42. 

Being  requested  by  a  merchant  to  prepare  a  statement  for  cred- 
itors, you  find  his  accounts  to  be  as  follows:  real  estate  $25,000, 
mortgaged  for  $10,000,  interest  due  $750;  goods  on  hand  $18,000; 
fixtures  $1,250;  merchandise  in  warehouse  $10,000,  on  which  the 
merchant  has  borrowed  $3,000;  accounts  receivable  deemed  good 
$10,500,  doubtful  $1,500;  known  to  be  bad  $2,000;  bills  receivable 
(held  by  bank  as  collaterial  for  an  advance  of  $5,000)  $6,800;  cash 
$2,500.  In  addition  to  the  above  secured  claims  you  will  find  the  fol- 
lowing: accrued  rent  $500;  taxes  $750;  wages  $1,250.  The  merchant 
also  owes  A  $6,000,  B  $3,500,  C  $13,500,  D  $6,850,  E  $1,800,  F 
$2,650,  G  $1,225,  H  $1,400  and  there  is  an  unsecured  disputed  claim 
of  K  for  $1,300.  Submit  the  statement  required. 


20  PROBLEMS  IN  ACCOUNTING 

43- 

Construct  seven  column  statement  from  the  following  Trial  Bal- 
ance and  inventories. 

DR.  CR. 

Cash   $  12,300 

Notes  Receivable 32,700 

Accounts  Receivable 47,000 

Furniture  and  Fixtures   3,ooo 

Building   13,000 

Real  Estate    50,000 

Notes  Payable   30,000 

Accts.  Payable 13,100 

Advertising   2,600 

Commission  3,050 

Supplies  12,900 

Salary    9,300 

Insurance    625 

Postage  fv^y?^. . .  1,650 

Discount   550 

Exchange 25 

Interest   175 

Discount 375 

Thos.  Greene,  Prop 85,000 

Drawing  Accounts,  (Prop.)    4,300 

Mdse 64,350 


$193,000  $193,000 

INVENTORY. 

Furniture  and  Fixtures $  2,500 

Buildings   12,500 

Real  Estate  47,ooo 

Advertising 300 

Supplies 500 

Salary 300 

Insurance 150 

Postage    400 

Interest   (Asset)    25 

Mdse 5,365 


PROBLEMS  IN  ACCOUNTING  21 

44. 

Prepare  a  seven  column  statement  from  a  ledger  which  contained 
the  following  open  accounts  after  15  days  of  business: 

Cash .$8,418.76        $2,363.86 

Peter  B.  Burns,  Partner 9,000.00 

Alfred  E.  Paine,  Partner 3,000.00 

Furniture  and  Fixtures 450.00 

Bills  Receivable 1,000.00 

Interest    .25 

Commission 27.25 

Mdse.  discount 11.49  30.30 

Supplies    169.85 

James   Addington ^S1^ 

Mdse 7,060.00          3,040.50 

Accounts  Receivable 1,269.50          1,069.50 

Inventories:  Mdse.,  $4,474.07;  supplies,  $58.  Net  income  is 
shared  by  the  partners  in  proportion  to  their  investment.  Furniture 
and  fixtures  remains  unchanged. 

45- 

The  general  ledger  balances  of  The  Wilson  &  Wood  Company 
are  as  follows:  Cash,  $20,000;  Bills  Receivable,  $5,000;  Bills  Pay- 
able, $8,000;  Accounts  Payable,  $7,000;  Accounts  Receivable,  $14,- 
ooo ;  Mdse.  Dr.,  $80,000;  Cr.,  $95,000;  Real  Estate,  $7,500;  Expense, 
$3,000;  Interest  and  Discount,  Cr.,  $500;  Loss  and  Gain,  Dr.,  $31,- 
ooo ;  Capital  Stock  $50,000. 

There  remain  unsold  Mdse.,  $36,000;  the  Real  Estate  on  hand  is 
valued  at  $6,000;  items  charged  to  expense  and  not  yet  used,  $1,200; 
5%  of  the  accounts  receivable  are  doubtful;  wages  due  and  not 
paid,  $300. 

Prepare  seven  column  statement. 

46. 

Messrs.  Hawley  &  Wood  are  partners  in  business,  sharing  gains 
and  losses  equally.  On  the  basis  of  the  following  trial  balance  of 
their  double  entry  ledger  at  the  close  of  the  fiscal  year  you  are 
required  to  make  a  statement  showing  the  expense  and  revenue,  and 
also  the  net  capital  of  each  partner : 

W.  H.  Hawley,  investment $  8,405.26 

E.  K.  Wood,  investment 8,405.28 


22 


PROBLEMS  IN  ACCOUNTING 


Cash  . $  9,017.33 

Merchandise  3,224.89 

Bills  Receivable 12,000.00 

Bills   Payable 8,350.00 

Miscellaneous  Supplies    576.00 

Interest    129.74 

Loss  and  Gain 450.00 

Sundry  book  accounts  receivable 3,566.00 

Sundry  book  accounts  payable 3,803.42 

Totals    $28,963.96        $28,963.96 

Inventory  of  merchandise  on  hand,  $8,000. 
Supplies,  $85.50. 

47- 

The  trial  balance  of  the  Y.  Co.,  is  found  to  be  as  follows : 

Real  estate  and  buildings $  32,500 

Plant  and  machinery 40,000 

Capital  Stock,  Preferred. . ... . . .  100,000 

Capital  Stock,  Common  ^TT^.  .\. . . .  100,000 

Patents  and  goodwill 80,000 

Inventory,  July  1 29,000 

Purchases    82,500 

Sales    2I9»I75 

Labor 88,000 

Coal  6,000 

Salaries  general 11,000 

Salaries  management 5,ooo 

Insurance 875 

Allowances    6,250 

Freight    1,500 

Discount  and  interest 750 

Cash  in  bank 8,000 

Investments 15,500 

Notes   payable 26,000 

Accounts  Payable 14,000 

Miscellaneous  expense 4,300 

Book  debts 42,000 

Preferred  stock  in  treasury 5,ooo 

Repairs    1,000 


$459,175     $459,175 


PROBLEMS  IN  ACCOUNTING  23 

Merchandise  on  hand,  $26,500.  Prepare  expense  and  revenue 
statement  and  balance  sheet,  giving  effect  in  accounts  to  depreci- 
ation at  the  rate  of  7*^%  a  year  on  plant  and  machinery,  and  mak- 
ing an  allowance  of  5%  on  the  book  debts  to  provide  for  bad  debts. 

48. 

In  closing  a  set  of  books  state  how  you  would  treat  the  following 
on  ledger  and  financial  statements : 

Depreciation  on  machinery $1,500 

Expenses  prepaid 500 

Discounts  on  customers'  accounts 1,080 

Salaries  and  wages  accrued 675 

49- 

A  trial  balance  of  a  manufacturing  firm  taken  Dec.  31,  1910,  con- 
tains the  following  accounts : 

Plant  and  machinery.  .  .$  35,000     Capital  A $  40,000 

Stock  Raw  Material  Jan.  Capital  B 20,000 

i,  1910 15,000     Creditor's  Accounts.  . .  .       4,000 

Accounts  Receivable. . .     25,000     Sales 95,ooo 

Cash   200     Bank  Overdraft 5,ooo 

Loan  Account 7,000     Rent  of  Steam  Power. .       1,500 

Purchases  Material ....  38,000 

Labor   24,000 

Traveling  Expenses ....  2,500 

Salaries — General 6,000 

Interest 600 

Stationery  and  Printing  1,200 

Rents  and  Taxes 3>5oo 

Discounts   and   Allow- 
ances    1,250 

Fuel 3,ooo 

[nsurance    (Plant)    one 

year  from  July  i,  1910  1,150 

Freight  Inward 1,500 

General  Expenses 600 

Total $165,500         Total $165,500 

Stock  on  hand  Dec.  31,  1910,  $23,000;  each  partner  to  be  credited 
6  per  cent  on  his  capital  for  one  year  before  profits  are  ascertained ; 
3  per  cent  to  be  written  off  book  debts  for  discount ;  10  per  cent  to 
be  written  off  machinery  and  plant  for  depreciation ;  unexpired  insur- 


24  PROBLEMS  IN  ACCOUNTING 

ance  to  be  taken  into  account;  net  profits  to  be  divided  2-3  to  A, 
1-3  to  B.  Draft  Journal  entries  for  closing  the  books  and  prepare 
seven  column  statement. 

50. 

Prepare  a  six-column  statement.  Allow  5%  depreciation  on  plant 
and  machinery  for  the  year.  Allow  2%  for  Reserve  for  Bad  Debts 
on  Accounts  and  Notes  Receivable  for  the  year. 

BEDFORD  SHOE  Co. 
Trial  Balance,  Dec.  31,  1911. 

Capital  Stock $250,000.00 

Surplus,  Jan.  i,  1911 142,000.00 

Reserve  for  Depreciation  on 

Plant    and    Machinery, 

Jan.  i,  191 1 20,000.00 

Reserve  for  Bad  Debts,  Jan. 

i,  191 1 9,600.00 

Inventory,   finished   g  o  o  £Lpp\ 

Jan.  i,  1911 $  32,000.00 

Inventory,     Raw     Material, 

Jan.  i,  191 1 45,000.00 

Purchases 135,000.00 

Sales 379,680.00 

Discounts  on  Purchases 1,730.00 

Discounts  on  Sales 2,500.00 

Goods  Returned 3,650.00 

Wages   135,500.00 

Power,  heat  and  light 17,000.00 

Repairs  for  Machinery 2,800.00 

Factory  Expense 9,500.00 

Insurance  Expense 2,200.00 

Plant  and  Machinery 125,000.00 

Salaries   37,000.00 

Notes  and  Accounts  Rec. ...     200,000.00 

Notes  and  Accounts  Pay 30,000.00 

Furniture  and  Fixtures 4,000.00 

Cash 75,500.00 

Taxes 960.00 

Advertising 5,400.00 


$833,010.00  $833,010.00 


PROBLEMS  IN  ACCOUNTING  25 

Inventories  on  Dec.  31,  1911 : 

Finished  Goods $16,000.00 

Raw  Material 10,700.00 

Furniture  and  Fixtures 3,580.00 

Si- 

From  the  following  trial  balance  and  inventories  prepare  a  seven- 
column  statement. 

TRIAL  BALANCE  DR.              CR. 

Capital    $  75,000 

Land   $  5,ooo 

Buildings    21,500 

Tools  and  Machinery 6,575 

Horse  and  Wagon 1,205 

Furniture  and  Fixtures 393 

Patents    5,250 

Notes  Receivable 15,820 

Accounts  Receivable 86,981 

Insurance    1,205 

Notes  Payable 21,000 

Accounts  Payable  25,180 

Expense    830 

Salaries 6,675 

Advertising    2,620 

Freight    2,200 

Stationery    875 

Interest   175 

Discount   225 

Merchandise    35,^99 

$157,304     $157,304 
INVENTORY 

Land $  4,500     . 

Buildings   20,000 

Tools  and  Machinery  6,200 

Horse  and  Wagon 1,000 

Furniture  and  Fixtures 350 

Patents    5,ooo 

Insurance 200 

Advertising   550 

Stationery    400 

Interest  Payable 25 

Merchandise    5,76o 


26  PROBLEMS  IN  ACCOUNTING 

52. 

From  the  following  trial  balance  and  inventories  prepare  a  seven 
column  statement. 

TRIAL   BALANCE,   JAN.   31  DR.              CR. 

Capital $  45,000 

Furniture  and  Fixtures   $  3,930 

Horse  and  Wagon 2,750 

Land    3,650 

Machinery    25,750 

Buildings    18,650 

Notes  Payable  32,350 

Notes  Receivable 4,757 

Accounts  Payable  4,736 

Accounts  Receivable 32,450 

Cash 3,433 

Advertising .^  .  .  2,570 

Salary    .^ \.  .  8,750 

Commission    3,650 

Expense    5,74O 

Insurance    3,400 

Postage   865 

Interest   375 

Discount    450 

Merchandise  Inventory,  Jan  I . . .  5,650 

Merchandise  Purchases   37,650 

Merchandise  Sales 81,484 


$164,020      $164,020 


INVENTORY 


Furniture  and  Fixtures $  3,600 

Horse  and  Wagon 2,500 

Land 3400 

Machinery   22,500 

Buildings   18,150 

Advertising   400 

Insurance 515 

Postage    125 

Merchandise    7»55° 


PROBLEMS  IN  ACCOUNTING  27 

53- 

From  the  following  information  prepare  a  seven  column  state- 
ment. 

LEDGER  BALANCES 

A  Capital  Acount   $82,000 

Notes  Payable    10,000 

Accounts  Payable 9,000 

Notes  Receivable  25,000 

Acounts    Receivable    22,000 

Mortgage  Payable   25,000 

Real  Estate 45,ooo 

Merchandise    ("Credit)    7,000 

Interest    (Debit)    1,000 

Labor   30,000 

Expense  10,000 

INVENTORIES 

Real  Estate  $42,600 

Merchandise    45>oo° 

Interest  Due  the  Firm 500 

Wages  Accrued   800 

Taxes  Accrued  600 

54- 

A  grain  dealer  charges  his  customers  150  apiece  for  sacks  that 
cost  him  loc.  He  agrees  to  receive  back  any  sacks  returned  in  good 
condition  at  I2c  each,  calculating  that  they  would  be  worth  7^/2 c 
each.  How  should  these  transactions  be  treated  on  the  dealer's 
books  ? 

55- 

What  are  the  advantages  of  a  seven-column  statement?  Why  is 
it  that  the  difference  between  the  expenses  and  revenues  is  always 
exactly  the  same  as  the  difference  between  the  resources  and  liabil- 
ities? 

56. 

Describe  the  expense  and  revenue  account.  Show  how  this  ac- 
count is  made  up.  What  does  the  balance  of  this  account  represent, 
and  how  should  such  a  balance  be  finally  treated? 


PROBLEMS  IN  ACCOUNTING 


57- 

The  fiscal  year  of  a  Manufacturing  Company  ends  June  30,  1908 
and  the  bookkeeper  presents  a  statement  to  the  Directors  made  up  in 
the  following  form : 

Gross  Sales $285,000 

Increase  of  Inventory 15,000    $300,000 

Cost  of  sales : 

Operating   expenses,    material 

and  supplies 257,000 

Plant  Expense 12,000 

Freight  on  returned  goods ....          600 
Sundry  purchases  finished 

goods  10,400      280,000 

Manufacturing  Profit. . . .  20,000 

Other  Income : 

Miscellaneous  earnings. .  .<r\. .       1,500 

Profit  on  contracts \ .       6,500 

Discount  on  purchases 500          8,500 

$  28,500 
Less: 

Discount  on  sales 2&75 

Rebates  and  allowances 1,125          4,000 

Net  Plant  Profit $  24,500 

Less: 

General  expenses 5, 500 

Interest    1,500          7,000 

Net  Profit $  17,500 

You  are  required  to  make  up  an  Expense  and  Revenue  statement 
in  seven-column  form,  using  such  of  the  above  figures  as  may  be 
necessary,  together  with  these  following:  Inventory  June  30,  1907: 
Materials,  $115,000;  Supplies,  $35,000;  Finished  Goods,  $45,000. 
Inventory  June  30,  1908:  Material,  $140,000;  Supplies,  $10,000; 
Finished  Goods,  $60,000.  Materials  used  in  factory  during  the  year, 
$75,000;  Wages,  $122,500;  Fuel,  $2,500;  Repairs  and  Renewals,  $2,- 
ooo;  other  operating  expenses  $55,000,  which  includes  $25,000  sup- 
plies used. 


CHAPTER  V 

58. 

In  closing  the  ledger  at  the  end  of  a  fiscal  period,  into  what 
account  are  the  balances  of  accounts  that  show  expense  and  revenue 
merged?  Give  the  reason  for  this  and  state  how  the  net  loss  or  gain 
is  finally  disposed  of  in  the  case  of  (i)  an  individual  or  partnership 
business,  and  (2)  in  a  corporation. 

59- 

The  trial  balance  of  a  corporation  shows  Dec.  31,  1912,  a  credit  to- 
capital  stock  account  of  $74,176.  The  authorized  capital  of  the  com- 
pany is  $150,000.  There  is  $50,000  stock  in  the  treasury  of  the  cor- 
poration. These  figures  in  the  trial  balance  were  occasioned  by  the 
fact  that  the  bookkeeper,  not  understanding  corporation  bookkeeping, 
had  charged  the  capital  stock  account  with  losses  as  follows :  1908, 
$13,884.50;  1909,  $9,897.50;  1910,  $32,507.50;  and  credited  the  same 
account  with  gains  as  follows:  1911,  $4,319.15;  1912,  $26,146.35. 
(a)  Make  the  necessary  entries  to  adjust  the  books  so  as  to  show  the 
true  condition  December  31,  1912.  (b)  Give  a  clear  and  concise 
explanation  of  the  nature  of  the  bookkeeper's  error  and  of  the 
changes  which  are  necessary. 

60. 

At  the  beginning  of  the  year,  January  I,  the  capital  stock  of 
a  corporation  was  $100,000,  and  it  is  known  to  represent  good  assets  ; 
the  surplus  was  $24,000,  the  outside  liabilities  were  $17,000.  The 
net  earnings  since  January  I,  have  been  $16,000,  and  nothing  has 
been  paid  in  dividends.  What  is  the  present  excess  of  assets  over 
outside  liabilities? 

61. 

The  American  Gas  Light  Company  had  operated  a  gas  plant  since 
the  beginning  of  the  year  1896.  For  the  purpose  of  acquiring  this 
industry,  the  National  Gas  Company  was  organized  April  I,  1899, 
with  a  capital  of  $100,000,  and  after  purchasing  all  of  the  capital 
stock  of  the  American  Company,  issued  $100,000  of  first  mortgage 
6%  gold  bonds,  dated  April  I,  1899,  due  April  I,  1929,  interest  pay- 
able January  i  and  July  I  of  each  year. 


30  PROBLEMS  IN  ACCOUNTING 

June  30,  1899,  the  two  companies  were  united  by  a  certificate  of 
merger,  and  new  books  were  opened. 

The  accounts  of  the  American  Gas  Light  Company  had  not  been 
closed  at  any  time  during  that  company's  existence,  and  at  the  date 
of  the  merger,  stood  as  follows : 

Land,  buildings,  ma-  Capital $  50,000.00 

chinery,  mains  and  Bills  payable 5,000.00 

franchises   $  82,360.73     Accounts  payable 2,679.81 

Materials  and  tools ..       1,856.30     Gas  account !57,683.33 

.Coal    (including  Coke  account 6,210.69 

freight) 47,540.45     Tar  account 4,500.54 

Labor 50,668.73 

Repairs   13,872.46 

Water  and  other  sup- 
plies      3,869.39 

Superintendence  ....  3,500.00 

Salaries    (clerks  and 

collectors) 5,600.00  r^ 

Office  expenses 2,100.00 

Insurance    1,435.00 

Taxes 4,237.10 

Interest   1,450.40 

Cash 2,251.47 

-Consumer's  accounts.  3,210.44 

Other     accounts 

receivable 2,121.90 

$226,074.37  $226,074.37 

The  inventory  was  as  follows : 

Coal    $400 

Coke 150 

Tar  .  loo      $650 


In  acquiring  the  stock  of  the  American  Company,  paying  organi- 
zation expenses,  etc.,  the  National  Company  used  all  its  capital  stock 
.and  $90,000  first  mortgage  bonds,  holding  in  reserve  $10,000  of 
bonds  for  improvements. 

Make  the  necessary  journal  entries  to  open  the  books  of  the  new 
company,  and  prepare  a  balance  sheet  dated  June  30,  1899. 


PROBLEMS  IN  ACCOUNTING  31 

62. 

We  own  loo  shares  of  the  stock  of  the  Bellevue  Land  and  Im- 
provement Company,  par  value  100.  A  stock  dividend  of  10%  is 
declared.  The  market  value  of  the  stock  in  90.  Make  the  proper 
journal  entries. 

63. 

Messrs.  Sharp  &  Flat,  partners,  engaged  in  manufacturing,  decide 
to  form  a  business  corporation  under  the  laws  of  New  York,  under 
the  name  of  The  Sharp  &  Flat  Manufacturing  Company,  having  an 
authorized  capital  of  $100,000.  The  corporation,  in  consideration  of 
the  entire  issue  of  capital  stock,  purchased  all  of  the  assets  and 
assumed  all  of  the  liabilities  of  the  partnership  as  shown  by  the 
following  balance  sheet  dated  May  31,  1900.  Sharp  &  Flat  take  all 
the  stock  except  five  shares,  par  value  $100  each,  issued  to  incor- 
porators  for  cash  subscriptions. 

BALANCE  SHEET — MAY  31,  1900 

ASSETS 

Plant  and  machinery $35,000 

Stock  on  hand  per  inventory 20,525 

Accounts  receivable 22,750 

Bills  receivable 1,500 

Cash    5,225 


Total  assets $85,000 

LIABILITIES 

Sharp's   capital .$42,500 

Flat's  capital 36,300 

Accounts  payable 5>25O 

Bills  payable 700 

Wages  due  and  unpaid 250 


Total  liabilities $85,000 

During  the  first  year  of  the  corporation's  existence,  the  books 
were  kept  in  the  same  manner  as  during  the  partnership.  Soon  after 
the  end  of  the  first  fiscal  year  however  a  certified  public  accountant 
was  presented  with  the  following  trial  balance  showing  the  condition 
of  the  books  May  31,  1901,  and  was  requested  to  open  a  new  set  of 


32  PROBLEMS  IN  ACCOUNTING 

books  for  the  corporation,  covering  the  operations  of  the  business 
during  the  past  year,  and  to  prepare  therefrom  an  expense  and 
revenue  account  and  balance  sheet : 

TRIAL  B ALA  NGE; — MAY  31,  1901 

Sharp's  capital $  42,500 

Flat's  capital 36,300 

Plant  and  machinery $  37,500 

Stock  on  hand  per  inventory  May 

31*    J900 20,525 

Sales I3M05 

Purchases:  materials  and  supplies  48,000 

Labor 34,5oo 

Office  salaries 7,000 

Traveling  expenses 2,400 

Interest    600 

Stationery  and  printing 175 

Rent  and  taxes 4,200 

Discounts  and  allowances. . .  ./*. .  . .  2,250 

Fuel   ^7:..\...  4,600 

Insurance    175 

Freight    (inward) I»75O 

Commission 6,375 

Advertising 500 

Bills  receivable 6,115 

Bills  payable 1,100 

Accounts  receivable 36,115 

Accounts  payable 7*850 

Cash 6,375 


$219,155     $219,155 

Draft  the  opening  journal  entries  necessary  to  give  effect  to  the 
above,  prepare  an  income  and  profit  and  loss  account  and  a  balance 
sheet  as  at  May  31,  1901. 

(a)  depreciation  $%  on  plant  and  machinery,  (b)  unexpired  in- 
surance $75,  (c)  bad  debts  $325,  (d)  inventory,  stock  on  hand  May 
31,  1901,  $19.605. 

64. 

The  Elite  Amusement  Company  was  organized  on  January  I, 
1912,  with  an  authorized  capital  stock  of  $1,000,000.  The  stock 
was  all  subscribed  for  at  90,  to  be  paid  in  three  annual  installments. 
The  first  two  installments  were  duly  called  for  and  paid  in  full  with 


PROBLEMS  IN  ACCOUNTING  33 

the  exception  of  one  block  of  ten  shares  on  which  the  subscriber 
defaulted  after  paying  the  first  installment.  It  was  decided  to  hold 
these  shares  in  the  treasury. 

Make  journal  entries  necessary  to  record  correctly  each  of  the 
above  named  steps. 

65- 

The  third  installment  of  the  subscriptions  for  the  stock  of  The 
Elite  Amusement  Company,  mentioned  in  Problem  168,  was  due  on 
January  i,  1915.  Because  of  the  large  profits,  however,  it  was 
decided  not  to  call  this  third  installment,  but  instead  a  dividend  was 
declared  just  equal  to  the  amount  subscribers  still  owed  for  this  in- 
stallment, and  "fully  paid"  stock  certificates  were  then  issued  to  the 
subscribers.  What  entries  are  necessary  to  properly  record  these 
facts  ? 

66. 

A  corporation  has  outstanding  $1,000,000  of  fully  paid  stock.  Its 
accumulated  surplus  is  $140,000.  The  profits  for  the  current  year  are 
$100,000.  The  directors  declare  a  cash  dividend  of  6%  and  a  stock 
dividend  of  25%. 

(a)  Make  Journal  entries  to  record  these  last  two  transactions. 

(b)  Prepare  Balance  Sheet  after  the  dividends  are  declared. 

67. 

A  corporation  earns  in  1912  net  $50,000.00  on  a  capital  of  $250,- 
ooo.oo.  Business  has  increased  and  the  stock  on  hand  has  increased 
$50,000.00,  leaving  the  cash  balance  sufficient  only  for  the  current 
needs  of  the  business. 

Several  large  stockholders  are  women  who  need  some  return  on 
their  investment,  (a)  Should  the  directors  borrow  money  and  pay  a 
dividend?  If  so,  how  much  should  they  pay? 

(b)  Show  the  journal  entries  that  would  be  made  as  a  result  of 
the  course  of  action  that  you  advise. 

(c)  Prepare  four  imaginary  balance  sheets  one  for  Dec.  31, 
1911 ;  one  for  Dec.  31,  1912;  one  for  Jan.  5,  after  borrowing  money 
and  declaring  a  dividend  of  8%  but  before  the  dividend  has  been 
paid ;  one  after  paying  the  dividend.' 

68. 

What  is  meant  by  the  term  "stock-dividends?"  Are  they  legiti- 
mate at  any  time?  Would  you  consider  it  justifiable  at  any  time  to 
pay  a  dividend  with  borrowed  money  ?  Explain  carefully. 

69. 

"A  stock-dividend  is  really  not  a  dividend  at  all."  Defend  this 
statement. 


34  PROBLEMS  IN  ACCOUNTING 

70. 

"Treasury  stock  or  bonds  are  merely  so  many  legalized  pieces  of 
paper,  and  cannot  in  any  sense  be  considered  as  assets  of  the  corpora- 
tion creating  and  issuing  them"  (Dickinson).  Defend. 


A  company  has  purchased  1,000  shares  of  its  own  stock  at  $96.50 
a  share,  the  par  value  being  $100  per  share.  Its  balance  sheet  shows 
"Treasury  Stock,  $96,500."  Is  this  correct?  Give  reason.  If  not 
correct,  state  how  you  would  adjust  the  books. 

72. 

Q  A  corporation  is  organized  with  an  authorized  capital  stock  of 

$50,000,  of  which  only  $40,000  is  sold  and  stock  certificates  issued 
therefor.  Two  conflicting  methods  of  recording  the  capital  stock  on 
the  books  of  the  company  are  urged  by  rival  accountants  as  follows : 
(i)  treasury  stock  to  capital  stock  $50,000;  cash  and  properties  to 
treasury  stock  ,$40,000;  (2)  cash  and  properties  to  capital  stock 
$40,000. 

Which  method  is  the  better,  fand  why  ? 

73- 

Smith  &  Jones  are  partners,  drawing  equal  amounts  for  services, 
and  sharing  profits  according  to  capital  invested,  after  allowing  5% 
on  capital.  They  require  additional  capital  and  arrange  to  admit  the 
manager  to  the  firm,  he  to  acquire  a  one-quarter  interest  in  the  busi- 
ness. According  to  the  balance  sheet  Smith  has  $12,000  and  Jones 
$6,000  invested,  and  goodwill  is  valued  at  $6,000.  What  sum  must 
the  manager  contribute  ?  How  will  the  partnership  accounts  appear 
after  payment  into  the  firm  of  the  new  capital  ?  How  will  profits  be 
divided  in  the  future  ?  Show  accounts  in  skeleton  form. 

74- 

A,  B  and  C  were  partners  in  business  for  several  years.  A  died 
December  31,  1903.  The  articles  of  copartnership  provided  that  on 
any  change  in  the  firm  the  goodwill  should  be  taken  into  account  and 
its  value  divided  one-half  to  A  and  one-quarter  each  to  B  and  C.  The 
balance  sheet  at  the  date  of  A's  death  was  as  follows : 

Assets  Liabilities 

Cash   $  1,5.00     Sundry  accounts  payable. $  8,500 

Mdse.  on  hand 12,000     A's  net  investment 10,000 

Bills  and  Accts.  Rec 15,000     B's  net  investment 5,ooo 

C's  net  investment 5,ooo 

$28,500  $28,500 


PROBLEMS  IN  ACCOUNTING 


35 


In  January,  1904,  B  and  C  arranged  with  D  to  come  into  the  firm 
with  $5,000.  The  goodwill  is,  by  agreement,  to  be  valued  at  $3,000. 
The  new  firm,  consisting  of  B,  C,  and  D  takes  over  the  business  and 
goodwill  in  equal  shares,  subject  to  an  allowance  of  2l/2%  on  the  Bills 
and  Accounts  Receivable.  It  pays  the  estate  of  A  $5,000,  with  the 
understanding  the  balance  due  A's  estate  shall  remain  as  a  loan  at 
the  rate  of  5%  interest. 

Prepare  the  balance  sheet  and  the  capital  accounts  of  B,  C,  and  D 
as  they  should  appear  at  the  beginning  of  the  new  business,  writing 
off  the  goodwill  in  equal  proportions  to  amount  of  capital  invested. 

75- 

A  and  B,  each  carrying  on  a  similar  business,  agree  to  form  a 
partnership,  the  new  firm  to  take  over  the  assets  and  assume  the  lia- 
bilities of  each.  The  following  trial  balances,  representing  the  book 
accounts,  were  presented : 

A. 

Capital $  40,000 

Machinery  and  Fixtures $  30,000 

Cash 2,000 

Bills  Receivable 5,ooo 

Accounts  Receivable 30,000 

Inventory  Merchandise 25,000 

Wages   7,000 

Wages  due 250 

Expense 10,000 

Bills  payable ' . .  .  10,000 

Merchandise  Account 40,000 

Accounts  Payable 20,000 

Repairs 1,250 

$110,250    $110,250 
B. 

Capital  $  50,000 

Machinery  and  Fixtures $  30,000 

Cash 4,000 

Bills  Receivable 8,000 

Accounts  Receivable 40,000 

Wages   9,000 

Wages  due 500 

General  Expense 15,000 

Bills  Payable 15,000 

Merchandise  Account 50,000 

Inventory 32,000 


36  PROBLEMS  IN  ACCOUNTING 

Repairs   Account  ................       2,500 

Accounts  Payable  ...............  25,000 

$140,500    $140,500 

Each  partner  is  to  draw  half  the  profits.  Formulate  opening 
entries  for  the  new  firm.  At  the  end  of  the  year  a  profit  is  made  of 
$30,000.00.  Create  a  trial  balance  and  inventory,  using  your  own 
figures  to  produce  that  result  ;  divide  the  profits  between  the  partners 
and  make  statement  of  assets  and  liabilities. 


Two  partners  named  Wilson  and  Peters  find  at  the  end  of  the 
first  year's  business  the  Balance  Sheet  shows  that  Wilson's  interest  is 
worth  $18,000.00  and  Peters'  $9,000.00. 

The  good  will  of  the  firm  is  worth  $3,000.00.  Each  draws  profits 
in  proportion  to  his  investment. 

They  conclude  to  take  in  another  partner,  and  he  is  to  have  a  one- 
quarter  interest  in  the  new  firm. 

What  sum  must  the  new  partner  contribute  ?  How  will  the  part- 
nership accounts  appear  after  the  payment  of  the  additional  cap- 
ital? 

How  will  the  profits  be  divided?    Give  skeleton  form  of  accounts. 

77- 

X  and  Y  enter  into  partnership,  X's  capital  being  $20,000,  and  Y's 
$15,000.  Capital  is  to  bear  interest  at  10  per  cent,  per  annum. 
Profits  are  to  be  divided  equally  between  the  parties.  The  profits  for 
the  first  two  years  (after  charging  interest  on  capital)  were: 

ist  year  ...................................  $6,000 

2nd  year  ...................................   7,5°o 

and  the  drawings  of  the  partners  (in  excess  of  salaries)  were  : 

X  ...............  $1,500  first  year,  $1,750  second  year 

Y  ......  .........    1,200  first  year,    1,500  second  year 

At  the  end  of  the  second  year  Z  was  admitted  to  partnership,  and 
put  into  the  business  the  same  amount  of  capital  as  Y  had  in  the 
business  at  that  time,  and  on  the  same  conditions  as  to  interest  and 
division  of  profits.  The  profits  of  the  business  for  the  third  year 
were  $12,000,  and  the  partners'  drawings  in  excess  of  salary  were  : 

X  ........................................  $1,750 

Y  ........................................   1,600 

Z    ........................................   1,500 

Construct  the  capital  accounts  of  the  partners  for  each  of  the 
three  years,  showing  the  balance  of  each  at  the  end  of  the  third  year. 


PROBLEMS  IN  ACCOUNTING  37 

78. 


A,  B,  and  C  engage  in  business,  A  contributing  $10,000  capital, 
B  $5,000,  and  C  undertakes  to  take  the  active  management  at  a  salary 
of  $3,000  a  year,  to  be  paid  to  him  monthly.  After  providing  5  per 
cent,  interest  on  capital  they  are  to  divide  the  net  results  in  the  pro- 
portions of  5,  3,  and  2.  At  the  end  of  18  months  they  ascertain  the 
position  to  be  unfavorable  and  decide  to  wind  up.  The  assets  are 
agreed  to  be  worth  $12,500,  of  which  A  takes  $10,000,  and  B  $2,500. 
There  are  no  liabilities  except  for  the  capital  and  simple  Interest 
thereon,  and  one  month's  salary  due  C.  State  the  position  of  the 
three  partners  to  each  other. 

79- 

A,  B,  and  C  were  partners  and  contributed  the  following  capital : 
A,  $8,000 ;  B,  $6,000,  and  C,  $4,000.  Profits  and  losses  were  to  be 
borne  equally.  At  the  end  of  the  first  year  each  partner  had  drawn 
$1,000.  The  assets  were  then  disposed  of  for  $3,000,  the  purchaser 
discharging  all  liabilities  of  the  firm.  How  should  this  sum  of  $3,000 
be  apportioned  among  the  partners  and  would  any  of  them  have  to 
advance  any  further  sum?  If  so,  state  which  partner  and  how  much 
and  make  up  the  necessary  accounts  to  show  the  results. 

So. 

Bilsom  and  Marley  are  partners,  sharing  profits  and  losses  equally. 
The  partnership  is  dissolved  December  31,  1907,  at  which  time  Bil- 
som's  capital  investment  is  $10,000,  and  Marley's  $2,500.  The  total 
liabilities  of  the  firm  are  $25,000,  which  includes  $5,000  due  Bilsom 
on  loan  account  and  $2,500  due  Marley  on  loan  account.  The  whole 
of  the  assets  of  the  firm  are  disposed  of  for  $30,000  cash  on  May  I, 
19x38.  Prepare  accounts  closing  the  partnership  and  show  the  posi- 
tion in  which  the  partners  stand  with  each  other.  No  allowance  for 
interest  is  required. 

A,  the  party  of  the  first  part,  enters,  March  31,  on  the  perform- 
ance of  a  contract  for  $50,000,  payable  in  two  installments  of  $25,- 
ooo  each,  the  first  of  which  is  due  on  completion  of  a  specific  part 
of  the  work,  but  subject  to  10%  to  be  retained  by  the  party  of  the 
second  part  as  security  for  the  continuation  of  the  undertaking ;  the 
second,  together  with  the  security  retained  as  aforesaid,  is  to  be 
paid  on  final  acceptance  of  the  completed  work. 


38  PROBLEMS  IN  ACCOUNTING 

A  has  a  capital  of  $4,000  available  for  payment  of  labor,  which 
proves  insufficient.  He  therefore  takes  in  as  associates  on  April  I, 
B,  who  contributes  $3,000,  and  C,  who  contributes  $1,000,  B  and  C 
to  share  profits  in  proportion  of  Y*.  and  Y%  respectively  and  to  re- 
ceive interest  on  capital  at  6%  per  annum. 

The  first  installment  of  the  contract  falls  due  and  Is  pafd  on 
May  i,  at  which  time  there  had  been  expended  by  the  contractors 
for  labor  and  incidentals  $7,502,  and  obligations  for  materials  and 
supplies  furnished  on  credit  had  been  incurred  and  were  outstanding 
to  the  amount  of  $13,900,  of  which  all  'but  $1,500  are  forthwith 
settled  from  the  installment  money. 

On  receipt  of  the  first  installment  B  and  C  withdraw  their  capital 
and  realize  the  profits  earned  at  the  completion  of  the  first  stage 
of  the  work,  leaving  A  to  continue  alone,  it  being  carefully  estimated 
and  mutually  conceded  that  a  further  outlay  of  $26,158  will  be  suf- 
ficient to  finish  the  work  and  cover  all  reasonable  contingencies. 

Show  by  skeleton  ledger  accounts  the  cash  payable  by  A  to  B  and 
C  respectively  on  their  withdrawal  /from  the  partnership,  and  state 
the  resources  and  obligations  that  remain  to  A  on  entering  upon  the 
second  part  of  the  work. 

82. 

A  firm  whose  resources  and  liabilities  are  stated  below  is  con- 
verted into  a  corporation: 

Assets  Liabilities 

Real  estate  and  improve-  Accounts  payable $  7,800 

ments $64,500      Bills  payable 25,200 

Merchandise    15,900     Partners'  accts 55>ooo 

Accounts  receivable 5 ,000 

Cash   .        2,600 


$88,000  $88,000 

The  corporation  receives  all  the  assets  except  the  casn,  and  as- 
sumes payment  of  the  accounts  payable  but  not  of  the  bills  payable. 
The  real  estate  and  improvements  are  taken  over  at  a  value  of  $100,- 
ooo,  and  the  good  will  is  considered  worth  $20,000.  The  purchase 
price  is  to  be  as  follows :  $33,100  in  cash,  $50,000  in  bonds  and  $50,- 
ooo  in  capital  stock  of  the  corporation. 

What  entries  are  necessary  to  close  the  books  of  the  firm  and  to 
open  the  books  of  the  corporation? 


PROBLEMS  IN  ACCOUNTING 


39 


83- 


A  and  B  were  partners,  trading*  under  the  name  of  A,  B  &  Co. 
June  30,  1908,  the  following  balances  appear  on  their  ledger: 

A,  Capital  Account $70,000.00 

B,  Capital  Account 50,000.00 

Real  Estate 22,000.00 

Buildings 20,000.00 

Machinery  and  Tools 44,000.00 

Furniture  and  Fixtures 2,000.00 

Accounts  Receivable 50,000.00 

Cash 7,000.00 

Materials   and   Merchandise 53,000.00 

Accounts   Payable 35,000.00 

Bills   Payable 48,000.00 

Bills  Receivable 5,000.00 

On  June  30,  1908,  the  business  is  incorporated  as  the  X  Company, 
on  the  following  plan : 

1.  Capital  stock,  $150,000.00. 

2.  X  Company  takes  over  the  entire  assets  and  liabilities  of  A, 
B  &  Co.  at  the  book  figures  as  above,  except  (a)  real  estate  of  the 
book  value  of  $5,000,  which  is  retained  by  A,  B  &  Co. ;  (b)  the  ac- 
counts receivable,  which  are  taken  over  at  $48,000,  and  (c)  the  cap- 
ital accounts  of  the  partners. 

3.  X  Company  pay  A,  B  &  Co.  $30,000  for  the  good  will  of  the 
business. 

4.  Payments  to  A,  B  &  Co.  are  made  as  follows,  viz. :  $50,000 
in  first  mortgage  bonds,  and  the  balance  in  capital  stock  of  the  X 
Company. 

5.  After  paying  off  A,  B  &  Co.  the  remainder  of  the  capital 
stock  is  sold  for  cash  to  sundry  persons. 

The  real  estate  which  is  retained  by  A,  B  &  Co.  is  bought  from 
A,  B  &  Co.  by  A,  for  $7,000,  and  is  charged  to  A's  capital  account. 

After  the  conclusion  of  the  foregoing  described  transactions  A 
and  B  dissolve  partnership. 

You  are  required : 

(a)  To  prepare  closing  entries  for  the  books  of  A,  B  &  Co. 

(b)  A  statement  setting  forth  the  partners'  accounts  down  to 
their  final  closing,  beginning  with  the  balances  shown  by  the  books 
on  June  30,  1908. 

(c)  Opening  entries  for  the  X  Company. 


40  PROBLEMS  IN  ACCOUNTING 

84. 

How  do  the  accounts  of  a  corporation  and  of  a  partnership  differ 
in  the  statement  of 

(a)  Investments. 

(b)  Operation  of  business  and  determination  of  profits. 

(c)  Division  and  distribution  of  profits. 

85. 

Distinguish  between  the  following: 

(a)  Capital  stock  authorized. 

(b)  Treasury  stock. 

(c)  Donated  stock. 

(d)  Stock  outstanding. 

On  which  side  of  the  balance  sheet  will  each  appear? 

86. 

The  Domestic  Manufacturing  Company,  organized  with  a  Capital 
Stock  of  $5,000,000,  half  preferred  and  half  common,  sells  five  shares 
of  common  stock  at  par  for  cash.  It  issues  to  John  Jones  $1,500,000 
preferred  stock  and  $1,000,000  common  stock  in  consideration  of  the 
assignment  by  him  of  certain  rights,  patents,  and  contracts.  Later 
Jones  agrees  to  surrender  for  valuable  consideration  to  the  treasurer 
of  the  Domestic  Manufacturing  Company  $1,000,000  common  stock 
and  $500,000  preferred  stock.  Still  later  Jones  agrees  to  surrender 
to  the  Domestic  Manufacturing  Company  $1,000,000  preferred  stock 
and  take  in  lieu  thereof  $1,000,000  common  stock.  Jones  makes  a 
further  agreement  with  the  company  to  deliver  to  it  all  the  stock  in 
the  Blank  Manufacturing  Company,  appraised  at  $350,000,  and  to 
pay  the  Domestic  Manufacturing  Company  $150,000,  for  which  he  is 
to  receive  $500,000  in  preferred  stock  of  the  Domestic  Manufactur- 
ing Company. 

Illustrate  by  journal  entries  the  necessary  accounts  to  be  opened 
on  the  books  of  the  Domestic  Manufacturing  Company  to  show  each 
step  in  the  foregoing  agreement. 

87. 

It  is  proposed  to  organize  for  conducting  a  small  manufacturing 
business  a  corporation  based  on  certain  rights  and  franchises  owned 
by  one  of  the  proposed  stockholders.  The  amount  of  the  capital 
stock  is  to  be  $100,000.  The  owner  of  the  rights  and  franchises 
agrees  to  transfer  them  to  the  corporation  in  consideration  of  $50,000 
of  the  capital  stock,  though  he  believes  them  to  be  worth  much  more 


PROBLEMS  IN  ACCOUNTING  41 

than  that  amount.  The  remainder  of  the  stock  is  to  be  sold  to  pro- 
vide working  capital.  Certain  capitalists  are  to  be  approached  for 
cash  subscriptions  to  the  capital  stock,  but  it  is  uncertain  what  opinion 
they  will  hold  concerning  the  enterprise,  and  it  is  desired  to  have  the 
stock  in  the  treasury  in  such  form  that  it  can  be  sold  below  par  if 
necessary.  What  method  would  you  suggest  for  accomplishing  the 
end  in  view?  Formulate  the  journal  entries  for  opening  the  books 
of  the  corporation  in  accordance  with  your  suggestion. 

88. 

The  Elk  Run  Tanning  Company  has  been  organized  under  the 
laws  of  Pennsylvania  with  an  authorized  capitalization  of  $500,000, 
all  common  stock,  par  value  $100.  The  five  incorporators  subscribe 
and  pay  cash  for  fifty  shares  each  at  face  value.  F.  W.  Coulter  pur- 
chases the  tannery  now  being  operated  by  Thos.  Keck  &  Son,  paying 
for  the  complete  plant  $475,000,  and  transfers  the  same  to  the  newly 
incorporated  company  for  the  remaining  common  stock  and  $100,- 
ooo  of  first  mortgage  5%  bonds. 

Make  the  opening  journal  entries. 

89. 

A,  B  and  C  constitute  a  firm  engaged  in  a  manufacturing  busi- 
ness, which  they  have  decided  to  change  into  a  stock  company  with 
a  capital  of  $100,000,  equally  divided  into  common  and  preferred 
stock,  par  value  $100  for  each  share.  Each  partner  is  to  take  stock 
to  the  amount  of  his  net  investment  in  the  business,  on  the  basis 
of  75  per  cent  preferred  and  25  per  cent  common  stock  and  the  re- 
maining shares  authorized  are  to  be  offered  for  sale. 

On  taking  over  the  business  the  books  of  the  firm  show  assets 
as  follows:  real  estate,  $25,000;  machinery  and  tools,  $10,000;  mer- 
chandise, $15,000;  materials  and  supplies,  $8,000;  cash,  $5,000; 
notes  receivable,  $3,000;  accounts  receivable,  $9,000.  The  liabilities 
are:  notes  payable,  $10,000;  accounts  payable,  $5,000;  A,  $25,000; 
B,  $20,000,  and  C  $15,000. 

Formulate  the  necessary  entries  to  close  the  books  of  the  firm 
and  to  open  the  books  of  the  new  corporation. 

« 
90. 

The  Great  Northern  Manufacturing  Company  was  incorporated 
under  the  laws  of  the  state  of  New  Jersey,  February  I,  1899,  with  a 


PROBLEMS  IN  ACCOUNTING 


capital  stock  of  $10,000,000,  consisting  of  $4,500,000  (45,000  shares 
of  $100  each)  preferred  7%  non-cumulative  stock,  and  $5,500,000 
(55,000  shares  of  $100  each)  of  common  stock.  On  the  same  date 
$2,000  of  the  common  stock  was  subscribed  for  at  par  as  follows : 

By  John  Smith,  2  shares $    200 

"  Henry  Brown,  4  shares 400 

"  John  Doe,  4  shares 400 

"  Henry  Rodman,  3  shares 300 

'  Wm.  Rodman,  7  shares 700 


Total $2,000 

On  February  4,  1899,  these  subscribers  paid  in  to  the  company 
the  amount  of  their  subscriptions,  and  stock  was  issued  to  them. 
February  15,  the  balance  of  the  authorized  capital  stock  of  the  com- 
pany, both  preferred  and  common,  was  issued  by  resolution  of  the 
board  of  directors,  to  John  M.  Scott,  for  and  in  consideration  of 
$750,000  in  cash  and  12  manufacturing  plants.  An  inventory  of  the 
property  purchased,  made  by  authorized  representatives  of  the  com- 
pany, resulted  in  the  following  appraised  valuations  on  the  various 
plants  and  the  stocks  on  hand : 

Materials 
$  98,000 
84,000 
62,000 
48,000 
89,000 
26,000 
34,000 
62,000 
11,000 
35,ooo 
71,000 
44,000 

Totals $2,448,000    $526,000    $2,090,000    $279,500    $664,000 

Open  the  accounts  of  the  company  so  that  the  result  of  the  opera- 
tion of  each  factory  will  be  known  at  the  end  of  the  company's  fiscal 
year.  The  books  of  the  company  are  not  to  show  the  appraised  valua- 
tion placed  on  the  real  estate,  buildings,  tools,  machinery,  etc.,  by 


Buildings  1 

R.eal  Estate 

Mach'y 

Tools 

A  .... 

$  430,000 

$  95,000 

$  195,000 

$  20,000 

B  .... 

211,000 

44,000 

130,000 

10,000 

C  .... 

495,ooo 

38,500 

475,000 

11,000 

D  .... 

304,000 

15,000 

924,000 

13,000 

E  .... 

171,000 

32,750 

184,000 

14,500 

F  .... 

86,500 

81,000 

60,000 

17,750 

G  .  .  .  . 

47,250 

44,000 

30,000 

32,500 

H  .... 

98,000 

35,750 

20,000 

14,600 

I  .... 

101,250 

11,000 

10,000 

17,200 

T  .... 

37,ooo 

13,000 

11,000 

19,200 

K  .... 

346,ooo 

49,000 

14,000 

75,000 

L  .... 

121,000 

67,000 

37,ooo 

34,750 

PROBLEMS  IN  ACCOUNTING  43 

factories,  but  in  one  amount  only ;  and  it  is  desired  that  the  account 
include  any  expenditure  incurred  by  the  company  for  good-will,  etc. 
Make  opening  entries  in  cash-book,  journal  and  ledger,  covering 
in  full  the  above  transactions. 

91. 

A  and  B  buy  merchandise  to  the  amount  of  $4,000,  A  contributing 
$2,500  and  B  $1,500.  They  sell  to  C  a  Vz  interest  in  the  business  for 
$2,000.  How  much  of  the  $2,000  will  A  and  B  receive  respectively, 
in  order  to  make  A,  B  and  C  equally  interested  ? 

92-  *>i 

Three  brothers,  A,  B,  and  C,  own  all  the  capital  stock  (each  Vz] 
of  a  certain  corporation  X.  They  own  also,  but  not  equally,  55% 
of  the  capital  stock  of  a  kindred  corporation  Y,  which  is  capitalized 
for  $100,000,  the  par  value  of  the  shares  being  $10.  The  holdings  of 
each  in  the  Y  corporation  are  as  follows :  A,  2,222  shares ;  B,  2,222- 
shares;  C,  1,056  shares. 

The  three  brothers,  acting  as  the  corporation  X,  purchase  out  of 
corporate  funds  the  remaining  45%  interest  in  the  corporation  Y,. 
paying  $100,000  therefor.  Without  further  cost  to  X  they  now  wish 
to  merge  the  two  corporations  under  the  corporate  name  X  and  to 
dissolve  Y. 

C  proposes  to  make  compensation  to  A  and  B  individually  for  an 
equal  interest  in  the  5,500  shares  upon  the  same  basis  as  the  45% 
interest  was  acquired,  so  that  all  may  share  equally  in  the  merged 
properties. 

1 i )  How  much  should  C  pay  to  each  of  the  other  stockholders  ? 

(2)  Outline  the  entries  necessary  to  record  all  the  above  stated 
transactions  on  the  books  of  X  and  Y. 

93-  *HV 

A  corporation  agrees  to  purchase  a  mine,  issuing  $500,000  full 
paid  stock  in  payment.  The  stock  is  issued  to  the  owner  of  the  mine, 
with  the  agreement  that  he  donate  to  the  company  $200,000  of  the 
stock  to  provide  working  capital.  $60,000  of  this  stock  is  sold  at  50% 
of  par ;  100,000  at  60%  ;  and  40,000  at  70%. 

(a)  Make  all  entries  necessary  to  show  these  transactions,  all 
subscriptions  being  paid  in  cash. 

(b)  Show  the  balance  sheet  as  it  will  stand  after  these  trans- 
actions. 


44  PROBLEMS  IN  ACCOUNTING 

94- 

On  December  31,  1910,  the  balance  sheet  of  the  Wrigley  Supply 
Company  was  as  follows : 

Real  Estate  and  Build-  Capital  Stock $  60,000 

ings $  50,000     Bills  and  Accts.  Pay.  . .  .     25,000 

Machinery   5,ooo     Surplus 15,000 

Furniture  and  Fixtures .  5,000 

Merchandise  Inventory.  25,000 

Bills  and  Accts.  Rec ....  10,000 

Cash   5,ooo 


$100,000  $100,000 

The  Wrigley  Supply  Company  now  sells  all  its  assets  with  the 
exception  of  its  Cash  to  The  Interurban  Supply  Company.  The  sell- 
ing price  is  $120,000 ;  $60,000  being  payable  in  cash  and  $60,000  in 
the  6%  cumulative  preferred  stock  of  The  Interurban  Supply  Com- 
pany. 

After  the  sale  has  been  consummated  The  Wrigley  Supply  Com- 
pany pays  off  its  outstanding  liabilities  and  then  distributes  its 
remaining  assets  pro  rata  among  its  stockholders  and  dissolves. 

State  how  much  cash  and  how  much  stock  of  The  Interurban 
Company  each  share  of  The  Wrigley  Supply  Company  is  entitled  to 
receive  in  the  final  distribution.  Make  all  the  journal  entries  neces- 
sary for  the  books  of  The  Wrigley  Supply  Company. 

• 

A.  B.,  desiring  to  incorporate  his  business,  secures  a  charter  under 
the  laws  of  Pennsylvania,  on  December  28,  1910,  the  A.  B.  Company 
being  organized  for  the  purpose  of  manufacturing  chemicals  and  for 
the  sale  of  the  products  of  such  manufacture.  The  capital  stock  of 
the  company  consists  of  3,000  shares  of  the  par  value  of  $100  each, 
the  subscribers  being  as  follows : 

A.  B 2,996  shares 

C.  D i  share 

E.  F i      " 

G.  H i       " 

J.  K i       " 

A.  B.  advances  from  his  own  funds  the  minimum  amount  of  cash 
required  by  law.  The  balance  of  the  subscription  is  to  be  paid  for  in 
Formulae,  Trade  Marks,  and  Patents  belonging  to  A.  B.  to  the 


PROBLEMS  IN  ACCOUNTING 


45 


amount  of  $150,000,  and  a  sufficient  amount  of  the  tangible  assets  of 
A.  B.'s  business,  a  Balance  Sheet  of  which  at  January  I,  1911,  is  as 
follows : 

Real  Estate $  25,000     Bills  Payable $     2,000 

Machinery   30,000     Accts.  Payable 3^43 

Fixtures   15,600     Capital  of  A.  B : .  .   152,279 

Manufactured  Product.  15,220 

Materials   28,650 

Coal 578 

Prepaid  Insurance 1,856 

Cash    12,106 

Accts.  Receivable.  . ,  . .  .  28,412 


$157,422  $157422 

(a)  Prepare  entries  for  opening  the  books  of  the  A.  B.  Com- 
pany. 

(b)  Prepare  appropriate  entries  for  the  books  of  A.  B. 


Two  manufacturers  of  steel  castings  with  their  plants  located  in 
the  same  city  decide  to  eliminate  local  competition  by  consolidating. 
A  company  is  incorporated  with  $250,000  preferred  and  $250,000 
common  stock,  to  take  over  the  assets  and  business  of  both  plants. 
The  new  corporation  buys  the  two  plants,  subject  to  a  payment  of 
$10,000,  giving  therefor  its  capital  stock  to  the  full  amount  author- 
ized. Twenty  per  cent  of  both  common  and  preferred  stock  is 
donated  to  the  new  corporation's  treasury  in  order  to  provide  work- 
ing capital.  The  corporation  sells  three-fourths  of  the  donated  pre- 
ferred at  95,  giving  a  50%  bonus  in  donated  common  stock.  Exten- 
sions and  betterments  are  considered  desirable,  and  the  corporation 
issues  $100,000  6%  ist  mortgage  bonds,  which  bonds  are  sold  at  par 
with  a  bonus  of  10%  preferred  and  30%  common. 

Prepare  all  the  journal  entries  necessitated  by  the  above  trans- 
actions. 

97- 

Several  manufacturers  consolidate  their  interests  and  organize 
the  Consolidated  Manufacturing  Company,  with  an  authorized  capital 
stock  of  $1,000,000,  divided  into  5,000  shares  of  common  stock  and 
5,000  shares  of  preferred  stock  at  $100  each  par  value. 

The  manufacturers  sell  to  the  company  all  of  their  assets,  subject 
to  floating  debts  of  $115,000,  divided  into  notes  payable  $65,000,  and 
accounts  payable  $50,000,  for  the  sum  of  $1,000,000,  payable  $1,000 


46  PROBLEMS  IN  ACCOUNTING 

in  cash,  $499,000  in  common  stock,  and  $500,000  in  preferred  stock. 
The  company  agrees  to  pay  the  debts  of  $115,000.  The  active  assets 
acquired  are  inventoried  by  the  Consolidated  Manufacturing  Com- 
pany as  follows :  Real  estate  $175,000,  machinery  $200,000,  and  mer- 
chandise $155,000. 

The  patents  and  good  will  were  inventoried  at  a  sum  equal  to  the 
difference  between  the  net  cost  to  the  company  of  the  assets  acquired 
and  the  above  valuation  of  the  active  assets. 

The  company  received  $1,000  cash  for  10  shares  of  common  stock, 
and  for  the  purpose  of  providing  funds  for  working  capital  author- 
ized an  issue  of  bonds  amounting  to  $300,000,  of  which  $200,000 
were  immediately  sold  as  follows:  $100,000  for  cash  at  80%,  and 
$100,000  for  cash  at  par,  with  a  bonus  of  common  stock  amounting 
to  $100,000. 

For  the  purpose  of  providing  common  stock  to  be  given  as  a 
bonus  the  manufacturers  donated  $200,000  of  common  stock  to  the 
treasury  of  the  company. 

Prepare  the  journal  and  cash  entries  for  the  company,  covering 
all  of  the  above  transactions,  and  prepare  a  balance  sheet  of  the  com- 
pany. 

98. 

A  corporation  organizes  under  the  laws  of  the  state  of  New  Jer- 
sey to  conduct  a  manufacturing  business,  with  an  authorized  capital 
stock  of  $1,000,000.00,  divided  equally  between  preferred  and  com- 
mon. Five  incorporators  each  subscribe  for  100  shares  of  the  com- 
mon stock  of  a  face  value  of  $100.00  per  share.  John  Jones  pur- 
chases from  three  manufacturers  their  fully  equipped  plants  for 
$950,000.00  in  cash,  and  turns  over  the  said  three  plants  to  the  newly 
incorporated  company  for  the  $950,000.00  of  preferred  and  common 
stock  and  $400,000.00  of  first  mortgage  5  per  cent,  bonds,  out  of  a 
total  issue  of  said  bonds  in  the  sum  of  $500,000.00,  leaving  $100,- 
ooo.oo  of  said  bonds  in  the  company's  treasury. 

Prepare  opening  entries  with  necessary  explanations  of  the  trans- 
actions and  a  statement  of  the  company's  condition  after  having 
acquired  the  three  plants. 

99- 

The  Prosperous  Company  is  organized  under  the  laws  of  the  State 
of  New  York  to  conduct  a  manufacturing  business.  The  authorized 
capital  is  $500,000,  divided  into  $250,000  common  and  $250,000  pre- 
ferred stock,  par  values  of  shares  $100.  Five  incorporators  subscribe 
each  for  one  share  of  common  stock  at  face  value.  John  Peters,  one 
of  the  incorporators,  purchases  from  three  manufacturing  companies 


PROBLEMS  IN  ACCOUNTING 


47 


their  complete  plants  for  $499,500  and  transfers  said  plants  to  the 
Prosperous  Company  for  the  remaining  $499,500  of  common  and 
preferred  stock  and  $100,000  of  first  mortgage  5  per  cent,  bonds  out 
of  a  total  issue  of  bonds  amounting  to  $150,000,  leaving  $50,000  of 
bonds  in  the  treasury.  The  incorporators  then  pay  in  cash  for  their 
respective  subscriptions. 

The  individual  assets  acquired  are  as  follows :  Land  and  build- 
ings, $75,000 ;  plant  and  machinery,  $200,000 ;  tools,  equipment  and 
fixtures,  $50,000;  inventories,  $100,000;  accounts  receivable  good 
$28,000,  doubtful  $5,000;  cash,  $12,000. 

Prepare  (a)  opening  entries  for  the  books  of  the  Prosperous 
Company;  (b)  initial  balance  sheet  showing  the  company's  financial 
condition. 

100. 

The  Smith  Brewing  Co.  with  $1,000,000  capital  stock,  the  Young 
Brewing  Co.  with  $500,000  capital  stock,  and  the  Star  Brewing  Co. 
with  $400,000  capital  stock,  agreed  to  consolidate  as  the  Universal 
Brewing  corporation,  the  new  company  to  buy  all  the  properties  of 
the  old  companies  at  a  valuation  to  be  fixed  by  appraisal,  payment 
therefor  to  be  made  in  full-paid  stock  of  the  new  company,  the  old 
companies  to  pay  off  their  own  indebtedness. 

The  appraised  values  of  the  old  companies  are  as  follows: 

Smith  Young  Star 

Real  Estate  and  Buildings $  680,000  $327,000  $126,000 

Plant 390,000  160,000  71,000 

Cash 15,000  3,000  1,000 

Bills  Receivable 10,000  6,000          

Horses,  Wagons  and  Harnesses  4,000  3,ooo  1,500 

Office   Furniture 1,000  1,000  500 


Total    $1,100,000        $500,000        $200,000 

Total  Appraised  Value $1,800,000 

On  this  valuation  the  Universal  Brewing  Corporation  issued  $2,- 
000,000  of  stock,  shares  $100  each,  which  was  divided  pro  rata  among 
the  old  companies  on  the  basis  of  their  appraised  value,  no  fractional 
shares  of  stock  to  be  issued,  odd  amounts  to  be  paid  old  companies  in 
cash. 

Give  journal  entries  necessary  to  set  up  property  accounts  and 
credit  old  companies  with  their  pro  rata  on  the  books  of  the  new 
company. 


48  PROBLEMS  IN  ACCOUNTING 

At  the  time  of  the  consolidation  the  ledger  accounts  of  the  Star 
Brewing  Company  were  as  follows : 

Real  Estate  and  Buildings $250,000 

Plant 247,000 

Cash    1,000 

Horses,  Wagons  and  Harness 1,800 

Office  Furniture.  .  1,200 


$501,000 

Capital  Stock $400,000 

Bills  Payable 50,000 

Accounts  Payable 51,000 


$501,000 

Make  the  proper  journal  entries  to  liquidate  in  stock  of  the  new 
company  the  liabilities  other  than  capital  stock,  to  apportion  the  re- 
maining stock  and  cash,  and  to  close  the  books  of  the  Star  Brewing 
Company. 

101. 

Describe  the  method  of  determining  the  number  of  shares  of 
capital  stock,  both  common  and  preferred,  held  by  each  of  the  several 
stockholders  of  a  corporation,  giving  fully  the  titles  of  the  books 
wherein  the  facts  are  registered  and  stating  how  the  books  are 
opened  and  operated. 

IO2. 

The  Royal  Manufacturing  Company  has  been  organized  with  an 
authorized  capitalization  of  $500,000  (All  Common  Stock).  $420,- 
ooo  of  the  stock  has  been  subscribed  for,  of  which  $120,000  was 
paid  in  cash  and  $200,000  in  property.  The  remainder  is  to  be 
paid  in  four  equal  installments.  The  first  installment  has  been 
called  for  and  collected.  Make  the  original  entries  covering  the 
above  transactions. 

103. 

The  following  are  subscriptions  for  stock  in  the  Red  Jacket  Min- 
ing Co. :  George  C.  Goodwin,  500  shares ;  S.  V.  Burnett,  250  shares ; 
T.  A.  Mulholland,  1,000  shares;  O.  D.  Hodgdon,  750  shares,  and 
Charles  Bridges,  1,500  shares. 

The  first,  second  and  third  installments  of  25%  each  have  been 
called  and  paid.  The  stock  certificates  are  issued  to  subscribers  on 
payment  of  the  first  installment,  each  installment  being  recorded  on 
the  back  of  the  certificate. 


PROBLEMS  IN  ACCOUNTING  49 

Jan.  i.     Mulholland  sells  100  shares  to  Bridges. 
Jan.  2.     Hodgdon  sells  200  shares  to  Bridges. 
Jan.  3.     Burnett  sells  250  shares  to  Goodwin. 
Jan.  4.     Bridges  donates  50  shares  to  the  company  to  be  sold 
for  the  purpose  of  acquiring  additional  working  capital. 

Show  all  necessary  entries  on  the  books  of  the  company. 


Rule  a  Stock  Ledger  and  enter  the  following  transactions: 
The  Jordan  &  Maher  Co.  is  incorporated  with  an  authorized 
capital  stock  of  $15,000,  all  of  which  is  issued  and  paid.  The  stock- 
holders are  as  follows  :  A.  J.  Bennett,  50  shares  ;  Cyrus  Crafts,  35 
shares;  J.  O.  Johnson,  30  shares;  J.  F.  Connell,  25  shares,  and  E. 
B.  Bosford,  10  shares. 

Crafts  buys  all  of  Bosford's  shares;  Johnson  sells  10  shares  to 
Bennett;  Connell  sells  15  shares  to  A.  B.  Freedman. 


CHAPTER  VI 

105. 

The  year's  cash  receipts  of  a  corporation  were  $250,625.16,  dis- 
bursements $110,328.28.  Are  the  directors  warranted  in  declaring  a 
dividend  on  the  presentation  of  these  facts  alone?  Give  reason  for 
your  answer. 

106. 

State  the  points  of  difference  between  a  statement  of  receipts  and 
disbursements  and  a  statement  of  revenues  and  expenses.  Under 
what  conditions  would  they  be  alike  ? 

107. 

"No  dividends  can  be  declared  before  the  expenses  of  running  the 
business  are  paid.  These  expenses  include  payment  of  Bills  Payable 
that  are  due  because  a  bill  payable  is  merely  written  evidence  of  an 
account  due.  A  bond  is  a  promissory  note  and,  therefore,  of  the 
same  category  as  bills  payable.  Since  a  bond  is  equivalent  to  a  bill 
payable,  no  dividend  can  be  paid  out  before  the  bond  is  paid  off." 

Examine  critically  the  above  statement. 

108. 

In  closing  the  books  of  a  firm  it  is  found  that  the  accounts  receiv- 
able include  $5,000  of  worthless  accounts  and  $10,000  of  doubtful 
accounts.  The  firm  decides  to  deduct  from  the  gross  profits  $15,000 
for  these  items.  What  would  you  consider  the  best  method  of  carry- 
ing these  items  on  the  ledger  ? 

109. 

Define :  Charging  to  Capital ;  Charging  to  Revenue.  What  rule 
controls  in  determining  whether  certain  payments  belong  to  capital 
or  to  revenue? 

no. 

A  Life  Insurance  Co.  has  issued  $100,000  of  stock  all  fully  paid 
up  in  cash.  During  the  first  year  preliminary  expenses  and  ex- 
penditures for  agency  establishment  and  advertising  amount  to  $15,- 

ooo.    The  liabilities  exceed  the  tangible  assets  by  $12,000  at  the  end 

*s^ 


PROBLEMS  IN  ACCOUNTING  51 

of  the  year.  •  Should  the  balance  sheet  be  corrected  by  reducing  the 
capital  stock  ?  If  not  what  item  would  you  place  on  the  asset  side  to 
offset  the  $12,000  excess  of  liabilities? 

in. 

A  railway  company  leases  the  property  of  another  railway  com- 
pany for  a  period  of  50  years  and,  as  part  consideration  for  the  lease,  . 
agrees  to  expend  immediately  $250,000  on  the  leased  property,  in  or-  • 
der  that  it  shall  have  a  greater  operating  efficiency.    At  the  termina- 
tion of  the  lease  the  property  is  to  be  returned  to  the  lessor  in  the 
same  condition  as  at  the  time  of  making  the  lease,  subject  to  ordinary 
wear  and  tear.    What  entries,  if  any,  would  you  make  on  the  books  of 
the  lessor  in  respect  to  the  expenditure  of  the  $250,000,  and  why? 
What  entries  required  on  lessee  company  books? 

112. 

If  a  company,  duly  organized,  acquires  several  plants  that  are 
found  to  be  in  a  "run  down"  condition,  and  to  require  extensive  out- 
lay for  repairs  and  renewals  to  bring  them  to  the  required  state  of 
efficiency,  should  such  outlay  be  charged  against  Capital  or  against 
Revenue  ? 

us.  7  c 

Which  of  the  following  should  be  charged  to  Capital  and  which 
against  Revenue: 

The  purchase  of  good  will; 
Loss  by  fire  of  uninsured  property ; 
Promotion  expenses ; 
The  purchase  of  a  lease ; 
Replacement  of  machinery ; 
Repairs  to  machinery ; 
Additional  machinery. 

114. 

Expenditures  are  made  by  a  corporation  for  items  of  each  of  the 
following  classes:  (a)  taking  down  a  machine  in  one  part  of  a  fac- 
tory, moving  it  and  putting  it  up  in  another  part,  (b)  expenses  of  in- 
corporating the  company,  including  state  charges  and  lawyer's  serv- 
ices, (c)  brokerage  on  purchase  of  a  piece  of  property,  (d)  com- 
mission on  an  issue  of  debenture  bonds,  (e)  costs  attending  a  mort- 
gage, (f)  furniture  and  fitting  of  a  city  office  and  salesroom,  (g) 


J 


52  PROBLEMS  IN  ACCOUNTING 

costs  of  patents,  including  solicitor's  charges  and  government  fees. 
Which  items  should  be  charged  to  capital  and  which  to  revenue? 
State  reasons  for  your  answer  in  each  case. 


In  closing  the  books  of  a  company  at  the  end  of  its  first  fiscal 
year  how  would  you  treat  : 

Organization  expenses  ; 

Advertising  booklets  on  hand  estimated  to  last  another  year  ; 

Cash  paid  for  patents  ; 

Bonus  paid  to  secure  contracts  having  two  years  to  run  ; 

Pig  iron  on  hand  costing  $20.00  per  ton  the  market  value  at 

the  closing  date  being  $18.00. 

116. 

"The  total  income  of  a  business  during  any  given  period  is  the 
excess  of  its  net  proprietorship  at  the  end  of  that  period  over  what 
it  was  at  the  beginning.  Expenditure  for  labor  and  materials  to  be 
used  upon  the  property  are  properly  divided  therefore,  into  two 
classes." 

(a)  What  are  the  two  classes  mentioned  above? 

(b)  What  is  the  basis  of  their  separation  ? 


< 


117, 


A  manufacturing  concern  having  increased  its  capital  and  in- 
vested considerable  money  in  new  machinery  and  in  the  recon- 
struction of  old  machinery,  removes  to  a  new  location  and  charges 
the  cost  of  moving  and  the  reconstruction  of  the  old  machinery  to 
one  account  termed  "Installation".  Explain  fully  how  this  account 
should  be  treated  in  closing  the  books  of  the  company,  and  give  your 
reasons. 

118. 

A« 

A  corporation  manufacturing  explosives  is  compelled  to  pay  ex- 
orbitant rates  for  a  very  limited  amount  of  insurance,  and  in  con- 
sequence was  obliged  to  install  an  automatic  sprinkler  system  at  a 
cost  of  $75,000.  This  additional  fire  protection  enabled  them  to 
secure  a  full  line  of  insurance,  though  in  mutual  companies,  and 
at  a  much  lower  rate  than  was  obtained  prior  to  such  installation. 


PROBLEMS  IN  ACCOUNTING  53 

At  the  end  of  the  fiscal  year  the  company  received  dividends  from 
these  mutual  insurance  companies  aggregating  $2,000.  To  what  ac- 
count should  the  cost  of  the  sprinkler  system  be  charged  and  to 
what  account  should  this  dividend  be  credited?  State  your  reasons 
fully. 

119. 

A  suburban  traction  company,  after  equipping  its  line  at  a  very 
considerable  expense  for  overhead  trolley  and  operating  same  for 
several  years,  decides  to  adopt  a  third  rail  system.  Extensive  changes 
are  necessary  in  changing  power  houses,  re-arranging  tracks,  and 
altering  cars,  involving  an  expenditure  of  $25,000.  In  addition  con- 
siderable machinery  and  rolling  stock,  the  original  cost  of  which 
had  been  treated  as  capital  outlay  and  was  carried  on  the  books 
at  a  valuation  of  $25,000,  is  rendered  obsolete  and  is  disposed  of  for 
$3,500,  showing  a  loss  of  $21,500.  The  profits  from  operation  for 
the  year  are  $18,000. 

State  how  you  would  recommend  that  the  matter  be  dealt  with 
in  the  company's  accounts  and  whether  the  company  can  pay  a  divid- 
end. Give  Journal  entries. 


120. 


When  provision  is  made  for  bad  and  doubtful  debts  and  for 
possible  discounts,  how  are  the  amounts  determined,  what  entries 
are  made  in  the  books,  and  how  do  they  appear  in  the  Balance  Sheet 
and  Expense  and  Revenue  Statement? 

*t» 

A  mining  corporation  has  assets  comprising,  among  others, 
leases,  goodwill,  rent  and  royalties  paid  in  advance,  and  patents. 
How  would  you  deal  with  them  in  the  balance  sheet  and  Expense 
and  Revenue  Statement? 

139. 

In  preparing  the  balance  sheet  of  a  business  at  the  close  of  a  year, 
how  should  you  treat  each  of  the  following  items: 

(a)  Bad  and  doubtful  debts? 

(b)  Premiums  for  fire  insurance  unexpired? 

(c)  Interest  paid  in  advance  on  notes  payable  discounted. 

(d)  Discount  on  notes  receivable. 

(e)  Discount  on  accounts  payable? 

(f)  Actual  depreciation  of  plant? 


54  PROBLEMS  IN  ACCOUNTING 

123. 

On  January  I,  1915,  the  condition  of  a  small  trading  company 
as  determined  by  an  examination  of  that  date  was  as  follows : 

Assets  Liabilities 

Furniture  and  Fixtures.  .$  2,000  Capital   Stock $  5.000 

Cash   500  Notes  Payable 3,000 

Notes  receivable 3,ooo  Accts.  Payable 6,000 

Accounts  receivable 5,ooo  Surplus 500 

Merchandise  on  hand . .  .     4,000 

Total $14,500         Total $14,500 

During  the  month  of  January  the  bookkeeper  made  all  entries  in 
the  cash  book  and  in  the  sales  book,  but  made  no  journal  entries  and 
did  not  post  his  ledger.  In  addition  to  the  entries  appearing  on  the 
cash  book  and  sales  book  the  following  transactions  took  place 
during  January:  Merchandise  purchased  on  credit  amounting  to 
$6,000;  notes  payable  amounting  to  $2,000  renewed;  special  allow- 
ances of  $500  made  to  customers. 

The  credit  sales  journal  had  two  columns,  one  for  the  billed 
amounts  and  the  other  for  the  cost  of  the  goods  sold.  The  billed 
amount  was  $8,000  and  the  cost  was  $5,000. 

The  following  statement  gives  a  summary  of  the  cash  receipts 
and  disbursements  for  January : 

Cash  Received 

Collected  from  customers $4,000 

Collected  on  notes  receivable 2,000 

Collected  on  Mdse.  sold  and  not  entered  in 

sales  book  (cost  price  $500) 600 


Total   cash   received $6,600 

Cash  Payments 

Interest  on  notes  payable $     45 

Salaries    500 

Rent   200 

Sundry     expenses 300 

Accounts  payable 5,ooo 


Total    disbursements $6,045 

Prepare  balance  sheet  as  of  January  31,  1915,  and  a  statement 
of  profit  and  loss  based  on  the  book  value  of  the  merchandise. 


PROBLEMS  IN  ACCOUNTING 


55 


124. 

A  and  B  of  Colorado  engaged  as  usual  partners  in  a  stock  raising 
enterprise  with  a  capital  of  $10,000  each  contributing  one-half.  A 
received  a  salary  of  $200  per  month.  At  the  end  of  three  years  they 
decided  to  terminate  the  business  and  B,  who  handled  all  the  money 
of  the  co-partnership  and  kept  the  books,  reported  the  following 
receipts  and  payments. 

Receipts.  Payments. 

A's  investment $  5,000     Purchases  of  cattle $57,000 

B's   investment 5,ooo     Loans  repaid 14,000 

Sales  of  cattle 8o»359     A's  Salary 4,200 

Loans   15,000     Interest 1,000 

Expenses   9,000 

A's  withdrawals 2,200 

B's  withdrawals 1,800 

A  round  up  and  branding  of  the  herd  showed  328  head  worth 
$5540.  There  remained  with  the  bankers  a  balance  of  $15,150. 
Other  assets  included  horses,  $800;  tools,  etc.,  $100;  supplies,  $150; 
accounts  receivable,  $750.  The  firm  owed  the  following  bills,  brand- 
ing irons,  $40;  salt,  $100;  loan  at  bank,  $1,000;  unpaid  wages,  $260. 
You  are  asked  to  prepare  such  statements  as  are  necessary  to  show 

(a)  the  financial  condition  of  the  co-partnership  at  its  termination; 

(b)  the  results  of  the  three  years'  operations;  and  (c)  the  interest 
of  each  partner. 

125. 

A  land  company  is  incorporated  with  a  capital  of  $50,000.  It  pur- 
chases a  tract  of  104  acres  of  land  at  $500  an  acre,  paying  therefor 
$32,000  in  cash  and  giving  capital  stock  for  the  remainder  of  the 
consideration,  and  at  the  same  time  giving  a  mortgage  to  a  title 
guarantee  company  to  secure  a  loan  of  $35,000,  which  is  to  be  satis- 
fied by  partial  payments  as  lots  are  sold  and  released. 

Obligations  are  incurred  on  book  account  as  follows :  for  organi- 
zation expense,  $619;  for  grading  and  paving,  $23,400;  for  water 
mains  (a  separate  enterprise  to  be  reimbursed  by  service  charges 
when  ready  for  operation),  $4,000. 

Direct  expenditures  of  cash  are  made  for  organization  expense, 
$537;  for  grading  and  paving,  $11,060;  for  water  mains,  $1,020;  for 
maps,  $700;  for  advertising,  $1,200;  for  salaries  and  expenses, 


56  PROBLEMS  IN  ACCOUNTING 

$8,679.  Settlements  are  made  with  creditors  by  cash  $8,784  and  by 
capital  stock  issue  $10,000;  the  remaining  capital  stock  is  issued  for 
cash. 

Lots  sold  on  purchase  money  mortgages,  $24,857;  installments 
collected,  $9,442  ;  cancellation  of  title  company  mortgage  on  lots  sold, 
$8,050,  and  purchase  money  mortgages  pledged  for  loan  of  $10,000. 

Interest  paid  to  title  company,  $1,849;  interest  received  on  pur- 
chase money  mortgages,  $924.  Inventory  of  lots  unsold,  including 
improvements  at  cost,  $66,575,  to  which  latter  10%  is  to  be  added  for 
appreciation  of  value.  Maps  on  hand,  $500. 

Prepare  (i)  cash  summary,  (2)  skeleton  ledger  accounts,  (3) 
profit  and  loss  account,  (4)  balance  sheet,  covering  the  transactions 
above  stated. 

126. 

The  trustees  of  an  estate  of  $250,000  make  the  following  invest- 
ments and  collect  the  income : 

NV\ 
PURCHASES 

Feb.     2 — loo  shares  D.  Q.  stock,  par  100  each,  at  $109.50. 

Mar.    5 — 10  S.  P.  bonds,  maturing  1950,  $1,000  each,  6%  Jan.  i  and 

July  i,  at  $1010  and  accrued  interest. 
Apr.  10 — Bond  and  mortgage  for  $5,000,  maturing  1916;  interest, 

5%,  Apr.  i  and  Oct.  i. 
Oct.    6 — 10  S.  P.  bonds,  maturing  1950,  $1,000  each,  6%  Jan.  i  and 

July  i,  at  $1020  and  accrued  interest. 

SALES 

Oct.     5 — loo  shares  of  D.  Q.  stock,  par  100  each,  at  $110. 

The  D.  Q.  stock  pays  quarterly  dividends  as  follows:  Apr.  i, 
*M%;  J^y  r>  !^%;  Oct.  i,  2%.  These  dividends  are  received 
respectively  on  April  3,  July  5,  and  October  3. 

The  interest  on  S.  P.  bonds  is  received  July  2  and  the  interest  on 
the  bond  and  mortgage  for  5  months  and  20  days  is  received  on  the 
due  date. 

On  April  10  the  trustees  borrow  from  the  bank  $1,100  on  col- 
lateral note  and  repay  the  loan  October  10,  with  interest  at  6%  per 
annum. 

Prepare  cash  account,  principal  and  income  accounts  of  each 
security,  interest  and  dividend  account,  and  trial  balance  as  of 
October  10. 


PROBLEMS  IN  ACCOUNTING  57 

I27-  (n/\/ 

LAKEVIEW  WATER  DEPARTMENT 

Receipts 

Water  Rates $106,352.62 

City's  Payment  for  Public  Use 

of  Water 17,549.10 

Plumbers'  Licenses 150.00 

Miscellaneous  2,835.03 

$126,886.75 

Disbursements 

Bonds  Paid $  25,700.00 

Interest  on  Bonds 18,049.00 

Salaries    17,371.90 

Repairs  to  Mains 460.21 

Repairs  to  Hydrants 1,082.61 

Tools  and  Utensils 495-33 

Supplies  and  Repairs  to  Sta- 
tions    5>5&3-32 

Fuel   12,319.77 

Barn  expense 1,987.94 

Repairs  to  Service I>575-56 

Office  expense 1,131.27 

Repairs  to  gates  and  valves. .  66.63 

Repairs  to  Meters 908.31 

Insurance  102.00 

Engineering    88.77 

Miscellaneous  1,327.46 

Special  assessment 138.19 

Tax  refunded  at  Lansing. ...  1.03 

Reconstruction    1,789.58 

Temporary  loan  paid  and  in- 
terest on  the  loan 2,542.50 

Meter  settings,  etc 689.55 

Pipe  extensions 23,259.79 

Improvements  to  stations ....  7,650.03 

$124,320.75 

From  the  above  data  prepare  Income  Account  for  the  Water 
Department,  assuming  that  the  value  of  the  water  furnished  the  city 
was  $25,500.00. 


58  PROBLEMS  IN  ACCOUNTING 

128. 

The  city  of  Urban  owns  its  water  plant.  The  total  cost  of  the 
plant  and  extensions,  new,  was  $530,000.  At  the  end  of  the  year 
1912  the  city  treasurer  makes  the  following  report : 

RECEIPTS  AND  DISBURSEMENTS  FOR  YEAR  1912 
Receipts 

Assessed  Rates $33,967.36 

Metered  Water 14,722.48 

Mason  Work - 836.04 

Meter  Rentals 172.44 

Miscellaneous   71-75 


Total    $49,770.07 

Disbursements 
Operation 

Pumping  Station  expenses. $  6,402.54 

Fuel 5,061.46 

Office  and  distribution  expenses 10,072.88 

Rebate  and  stoppages 605.76 

Maintenance 

Repairs  to  Distribution 607.35 

Repairs  to  Pumping  Station 644.19 

Repairs  to  Meters 581.50 

Interest  on  Bonds  and  Sinking  Fund 30,000.00 

New  Extension 8,000.00 

Insurance 414.88 


$62,390.56 

On  the  basis  of  the  above  figures  the  City  Treasurer  reports  that 
the  water  plant  has  been  operated  at  a  deficit  of  $12,620.49,  and 
recommends  that  the  water  rates  be  raised. 

Assuming  that  the  cost  new  of  the  depreciable  property  was 
$500,000,  and  that  1^/2%  on  cost  new  is  a  reasonable  annual  allow- 
ance for  depreciation ;  that  the  fire  protection  furnished  free  to  the 
city  by  the  maintenance  of  fire  hydrants  costs  (including  deprecia- 
tion and  interest  on  investment)  $12,000  per  year;  that  the  water 


PROBLEMS  IN  ACCOUNTING  59 

furnished  the  public  institutions  of  the  city  (public  schools,  jail,  en- 
gine house,  drinking  fountains,  etc.)  would  bring  if  paid  for  at 
meter  rates  $2,000;  that  of  the  $450,000  of  5%  bonds  originally 
issued  to  build  the  plant  $300,000  are  still  outstanding  while  $150,000 
have  been  redeemed  and  cancelled. 

On  the  basis  of  these  assumed  figures  and  the  statement  of 
receipts  and  disbursements  construct  an  income  account  for  this 
water  plant. 

What  per  cent  of  return  is  the  plant  yielding  the  city  on  its  invest- 
ment assuming  that  the  present  value  of  the  plant  (cost  new  less 
depreciation)  is  $465,000? 

129. 

"Income  must  be  accounted  for,  not  when  it  is  received  in  actual 
cash,  but  as  it  accrues  to  the  corporation."  Defend  this  statement, 
and  illustrate. 

130.  I  ^  I 

The  auditor  of  an  incorporated  company  which  has  been  accus- 
tomed to  making  investments  in  interest-paying  securities,  in  making 
his  statement  to  the  directors  presented  a  balance  sheet  showing  a 
surplus  of  $65,000.  After  discussion,  the  directors  determined  that 
they  did  not  wish  to  declare  a  dividend  out  of  the  surplus  and  gave 
their  auditor  the  following  order :  "Decrease  this  surplus  by  invest- 
ing $50,000  in  the  bonds  of  the  XYZ  Railroad  Co."  Presuming  there 
was  an  item  in  the  aforesaid  balance  sheet  of  cash  $75,000,  what 
effect  will  the  carrying  out  of  the  directors'  order  have  upon  the 
surplus  of  $65,000? 

Should  fluctuation  in  the  value  of  the  permanent  assets  of  a  com- 
pany be  allowed  to  affect  the  result  of  the  loss  and  gain  account? 
Give  reasons  for  your  answer. 

I32<  ir^ 

In  examining  a  business  to  determine  and  show  separately  the 
profits  for  the  two  years  ending  December  31,  1907,  it  is  found  that 
an  item  amounting  to  $500  had  been  omitted  from  the  inventory  of 
December  31,  1905,  that  an  error  had  been  made  in  the  footing  of 
the  inventory  of  December  31,  1906,  by  which  that  inventory  was 
overstated  to  the  amount  of  $250 ;  and  that  in  pricing  the  inventory 


<6o  PROBLEMS  IN  ACCOUNTING 

of  December  31,  1907,  an  error  was  made  by  which  that  inventory 
was  understated  to  the  amount  of  $1,000.  State  fully  the  effect  of 
these  errors  on  the  profit  of  each  of  the  two  years. 

133- 

The  East  and  West  Railroad  Company  hauled  many  tons  of 
coal  during  the  year  to  the  various  distributing  points  along  its  line 
for  the  use  of  the  locomotives,  and  upon  this  Company  coal  $70,000 
freight  was  charged,  such  charge  being  made  against  the  cost  of  fuel 
for  locomotives,  and  credited  to  freight  earnings.  Was  the  above 
method  of  handling  this  freight  item  correct?  In  answering  state 
your  reasons  fully. 

134. 

A  construction  company  has  a  number  of  contracts  partly  com- 
pleted at  the  close  of  the  fiscal  year.  Would  you  carry  any  portion 
of  the  anticipated  profit  on  these  contracts  into  Revenue  account? 
If  so,  why? 

135. 

An  examination  of  the  minutes  and  other  records  of  the  books  of 
a  corporation,  preceding  an  audit,  discloses  that  a  revaluation  of  its 
buildings,  plant,  and  machinery  had  been  made  by  expert  appraisers 
called  in  for  the  purpose.  The  report  of  these  appraisers  states  that 
the  values  as  determined  by  them  are  greater  than  those  shown  on 
the  books  of  the  company.  Should  such  increased  value  be  entered 
on  the  books  of  the  corporation?  How  would  this  increased  value 
show,  if  at  all,  in  the  profits  and  loss  account  and  the  balance  sheet  ? 

136. 

In  auditing  the  accounts  of  a  corporation  you  find  that  the  com- 
pany utilized  its  own  materials  and  labor  in  the  construction  of 
extensive  additions  to  its  plant,  and  that  it  has  charged  up  such  work 
at  regular  trade  prices  sufficient  to  yield  to  it  a  substantial  profit, 
which  has  been  credited  to  the  Expense  and  Revenue  Account.  Do 
you  see  any  objection  to  this  course?  Explain  fully  the  theory  upon 
which  your  answer  is  based. 

137- 

A  corporation  purchases  a  tract  of  land  for  $25,000.00  and  after 
holding  it  for  3  years  sells  half  of  it  for  $20,000.00,  using  the  remain- 
der for  an  extension  of  its  plant. 


PROBLEMS  IN  ACCOUNTING  6r 

The  president  of  the  company  favors  crediting  Profit  and  Loss 
with  $7,500,  crediting  Real  Estate  Account  with  $12,500.00.  The 
directors  ask  your  opinion.  Write  out  the  letter  you  would  submit. 

138. 

The  statement  submitted  by  the  treasurer  of  a  corporation  shows 
receipts  of  money  greatly  in  excess  of  disbursements,  leaving  a  bal- 
ance in  hand  of  more  than  enough  to  pay  to  stockholders  a  dividend 
of  6%.  The  directors  declare  such  dividend  pursuant  to  the  state- 
ment submitted  without  asking  for  any  other  further  information. 
Was  the  act  of  the  directors  a  prudent  one  under  the  circumstances  ? 
Give  reasons  for  your  answer. 

139. 

A  life  insurance  company  has  issued  $100,000  of  stock,  all  fully 
paid  up  in  cash.  During  the  first  year  preliminary  expenses  and 
expenditures  for  agency  establishment  and  advertising  amount  to 
$15,000.  The  liabilities  exceed  the  tangible  assets  by  $12,000  at  the 
end  of  the  year.  Should  the  balance  sheet  be  corrected  by  reducing 
the  capital  stock  ? 

140. 

A  New  York  company  sells  its  capital  stock  at  a  premium  and  the 
directors  pass  a  resolution  to  declare  a  dividend  out  of  the  surplus 
thus  paid  in.  Would  you  call  attention  to  this  action  if  asked  to  make 
up  the  accounts,  and  if  so,  why? 

141. 

"Premiums  realized  on  capital  stock  are  neither  income,  profits, 
nor  an  excess  of  capital  obtained  in  exchange  for  a  liability." 
(Esquerre.)  Explain. 

142. 

What,  in  your  opinion,  would  be  the  proper  accounting  record  for 
a  business  corporation  to  make  of  an  appropriation  from  its  surplus 
profits  for  the  amount  of  a  permanent  investment  in  property? 

143- 

The  principal  objects  of  a  corporation  were  to  buy,  rent,  and  sell 
land.  The  articles  of  incorporation  provided  that  dividends  should 
be  paid  out  of  net  earnings.  In  1882  the  company  had  a  bad  debt  of 
$350,000  and  they  met  this  by  writing  up  in  the  balance  sheet  of  that 
year  the  value  of  their  lands  some  $340,000  above  cost  price,  and 


62  PROBLEMS  IN  ACCOUNTING 

brought  down  such  increased  value  into  the  credit  side  of  the  profit 
and  loss  account  as  a  set-off  against  the  bad  debt,  which  was  in  this 
way  treated  as  written  off.  Was  this  legitimate  accounting? 

144. 

In  1885  the  above  company  made  a  profit  on  their  revenue 
accounts,  out  of  which  the  payment  of  a  dividend  on  preferred  stock 
was  proposed.  A  common  shareholder  brought  suit  to  restrain  the 
payment  of  the  proposed  dividend  on  the  ground  that  some  of  the 
company's  lands  had,  during  the  year  1885,  much  depreciated  in 
value  and  that  if  such  depreciation  were  debited  to  the  profit  and  loss 
account  there  would  be  a  considerable  loss  and  no  fund  available  for 
dividends.  Was  the  ground  for  action  a  good  one  ? 


CHAPTER  VII 


A  banking  firm  with  $200,000  of  capital  stock  outstanding  shows 
at  the  end  of  a  certain  year  profits  for  that  year  amounting  to  $38,000. 
The  directors  write  off  $8,000  of  Premium  on  Bonds  purchased 
during  the  year,  and  $10,000  of  the  original  cost  of  its  fixtures,  charg- 
ing both  these  amounts  to  the  Undivided  Profit  account.  The  bonds 
had  not  fallen  in  market  value,  and  5%  had  already  been  charged  to 
Expense  for  Depreciation  on  Fixtures.  How  would  you  describe  the 
result  of  this  action  on  the  part  of  the  directors  ? 

146. 

Describe  a  sinking-fund.  How  should  the  account  of  such  a  fund 
be  conducted  in  the  case  of  a  manufacturing  corporation  that  bonds 
its  works  for  $100,000,  payable  in  20  years,  and  wishes  to  accumulate 
during  that  period  the  sum  necessary  to  retire  the  bonds  at  maturity  ? 
What  amount  must  be  charged  the  first  two  years,  assuming  the  in- 
terest rate  to  be  4%  ? 

147. 

Draft  journal  entries  showing  how  a  sinking  fund  of  $5,000  a 
year  should  be  provided  for  retirement  of  an  issue  of  bonds,  the 
interest  rate  being 


(a)  The  Buffalo  Forge  Company  has  just  issued  $1,000,000  5% 
First  Mortgage  Bonds.     By  the  terms  of  the  Trust  Agreement  the 
Company  is  required  to  set  aside  each  year  $50,000  in  order  to  pro- 
vide a  fund  for  the  ultimate  redemption  of  the  bonds.    At  the  end 
of  the  first  year  the  Company  uses  $50,000  of  its  profits  to  purchase 
securities  of  other  corporations,  which  securities  it  turns  over  to  the 
Trustee.     Name  the  four  accounts  which  will  be  affected  and  give 
the  journal  entries. 

(b)  At  the  end  of  twenty  years  the  bonds  fall  due.    The  sink- 
ing fund  assets  are  sold  for  cash  and  the  bonds  retired.    What  are 
the  three  journal  entries  which  should  now  be  made  on  the  books  of 
the  company. 


64  PROBLEMS  IN  ACCOUNTING 

(c)  When  the  sinking  fund  assets  mentioned  in  (b)  are  sold 
$1,048,500  is  realized,  because  of  a  rise  in  the  market  price  of  the 
securities.  To  what  account  would  the  above  excess  of  $48,500 
naturally  be  transferred?  Could  it  be  legitimately  used  for  the  pay- 
ment of  dividends  ? 

M9. 

A  corporation  with  $200,000  common  stock,  $100,000  6%  income 
bonds  and  $100,000  5%  1st  mortgage  bonds  outstanding  sets  aside 
$10,000  a  year  out  of  profits  as  a  sinking  fund  with  which  to  retire 
the  ist  mortgage  bond  issue.  During  the  last  four  years  of  the  life 
of  the  bonds  profits  were  large  enough  to  provide  interest  and  sink- 
ing fund  on  the  bonds.  After  the  sinking  fund  assets  have  been  used 
to  pay  off  the  bonds,  the  income  bondholders  bring  action  to  compel 
payment  of  the  four  unpaid  dividends. 

Have  they  any  reasonable  ground  for  action?  Explain  fully  the 
reason  for  your  answer. 

150. 

Among  the  credits  in  the  Profit  and  Loss  account  of  a  Corpora- 
tion for  1909  is  the  following  item,  "Profit  on  bonds  repurchased  for 
sinking  fund,  $16,500." 

(a)  Explain  the  probable  origin  of  this  item. 

(b)  The  par  value  of  the  bonds  repurchased  during  1909  was 
$266,000.     Give  the  entries  made  at  the  time  of  purchasing  the 
bonds.    What  entries  should  have  been  made? 


The  Virginia  Coal  Company  was  organized  January  I,  1906,  began 
operations  about  January  7,  1906,  and  kept  an  ordinary  double  entry 
set  of  books  but  did  not  close  their  accounts  at  the  end  of  any  fiscal 
year.  After  an  examination  and  verification  of  all  accounts  stated 
in  the  trial  balance  they  are  accepted  as  correct  except  that  termed 
"Sinking  Fund  Payment"  ($22,500). 

The  mortgage,  securing  bonds  to  the  amount  of  $100,000,  con- 
tains a  sinking  fund  clause  providing  that  the  company  shall  deposit 
semi-annually  with  the  Sinking  Fund  Trustee  5c  per  ton  of  coal 
mined  ;  such  payments  shall  be  made  to  trustee  during  January  and 
July  of  each  year  for  the  preceding  six  months'  period.  Money  so 
deposited  is  to  be  applied,  as  soon  as  practicable,  to  purchase  bonds  at 
not  exceeding  115  and  accrued  interest;  compensation  and  expenses 
of  trustee  are  also  to  be  paid  from  the  Sinking  Fund.  Bonds,  when 


PROBLEMS  IN  ACCOUNTING  65 

redeemed,  cannot  be  canceled,  but  are  to  be  held  by  trustee,  who  shall 
collect  the  semi-annual  interest  thereon  and  apply  it  to  the  same  pur- 
poses as  the  5c  per  ton  payments. 

Bonds  are  dated  January  i,  1906,  run  for  20  years,  and  bear  in- 
terest at  6%  per  annum,  payable  January  I  and  July  I  of  each  year. 

Payments  to  Sinking  Fund  Trustees  have  been  made  as  follows: 

July  27, 06  Payment  for  6  mo.  ending  6/30/06, 

5c  per  ton  on  120,000  tons $  6,000 

Jan.  24,  '07  Payment  for  6  mo.  ending  12/31/06, 

5c  per  ton  on  150,000  tons 7>S°° 

July  28,  07  Payment  for  6  mo.  ending  6/30/07, 

5c  per  ton  on  180,000  tons 9,000 

$22,500 

On  January  30,  1908  the  Company  paid  to  the  Trustee  $5,500  for 
Sinking  Fund  payment  for  the  6  mo.  ending  Dec.  31,  1907,  being  50 
per  ton  on  110,000  tons. 

The  Trustee  submitted  statements  of  receipts  and  disbursements 
for  account  of  the  Sinking  Fund  to  date  (January  31,  1908)  as 
follows : 

Cash  Received  to  Dec.  31,  1907 

July  27,  1906  S.  F.  deposit  for  6  mo.  ending  June  31, 

1906,  120,000  tons  at  5c $6,000 

Jan.     5,  1907  Jan.  '07  coupons  on  5  bonds 150 

Jan.  24,  1907  S.  F.  deposit  for  6  mo.  ending  Dec.  31, 

1907,  150,000  tons  at  5c 7,5°° 

July     3,  1907  July  '07  coupons  on  12  bonds 360 

July  28,  1907  S.  F.  deposit  for  6  mo.  ending  June  30, 

1907,  180,000  tons  at  5c 9,000 

$23,010 

Cash  Disbursements  to  Dec.  31,  1907 

Aug.  16,  1906  Bonds  redeemed — 5,000  at  no $5,500.00 

Commission  at  %% 12.50 

Accrued  interest 37-5° 

?  5,550 

Feb.  15,  1907  Bonds  redeemed: 

4,000  at  108 $4,320 

2,000  at  no 2,200 

1,000  at  112 1,150 

— $7,640.00 

Commission I7-5° 

Accrued  interest 52.50 

$  7,710 


66  PROBLEMS  IN  ACCOUNTING 

Aug.  12, 1907  Bonds  redeemed : 

9,000  at  90 $8,100 

1,000  at  par 1,000 

—    $9,100 

Commission   250 

Accrued   interest 70 

$  9>420 
Compensation  of  Trustee,  $100;  Advertising,  $50 150 


$22,830 
Cash  balance  in  hands  of  trustees,  Dec.  31,  1907 $    180 

Received  in  January  1908,  viz : 

S.  F.  deposit  for  6  mo.  ending  Dec.  31,  1907, 

110,000  at  5c $5,500 

Coupons  on  22  bonds  in  S.  F 660 

Interest  allowed  on  balance  to  12/31/08 100      6,260 


$6,440 

Prepare  entries  to  state  properly  on  the  books  of  the  Virginia 
Coal  Co.  all  Sinking  Fund  transactions. 

152. 

A  corporation  issues  5%  2O-year  bonds  to  the  par  value  of 
$2,000,000,  at  92.  Seven  years  later  the  company  provides  for  a 
new  issue  of  5%  3O-year  bonds  to  be  used  partly  in  refunding  the 
outstanding  bonds  and  partly  in  raising  new  capital.  The  $2,000,000 
of  old  bonds  are  refunded  by  exchanging  for  them  new  bonds  of 
the  same  par  value  and  $140,000  ($7.00  per  $100.00  bond)  in  cash. 

(a)  What  did  the  company  realize  on  the  $2,000,000  of  new 
bonds  ? 

(b)  What  entries  would  you  make  at  the  time  of  this  refund- 
ing operation  ? 

153- 

^  On  January  I,  1906,  a  corporation  issued  and  sold  5%  2O-year 

bonds,  interest  payable  July  I  and  January  i,  to  the  par  value  of 
$1,000,000,  for  $900,000.00  cash.  These  bonds  contained  a  sinking 
fund  provision  under  which  the  corporation  was  obliged  to  call  and 
cancel  2%  of  the  original  issue  on  January  i,  1911,  and  each  year 
thereafter  until  maturity.  The  bonds  were  callable  at  105  and  ac- 
crued interest. 


PROBLEMS  IN  ACCOUNTING  67 

In  conformity  with  these  provisions  the  corporation  called  $20,- 
ooo  of  the  bonds  at  105  on  January  i,  1911,  and  each  year  since,  and 
expects  to  continue  the  practice. 

(a)  What  was  the  original  discount  on  these  bonds  at  the  time 
of  issue? 

(b)  What  is  the  unextinguished   bond   discount  on  January 
i,  1916? 

(c)  What  entries  would  you  have  made  when  you  paid  the 
bonds  which  were  called  on  January  i,  1911  ? 

(d)  What  is  the  effective  rate  of  interest  on  the  capital  which 
the  corporation  secured  from  the  sale  of  these  bonds? 

154- 

"Discounts  and  Premiums  on  Bonds  are  in  effect  an  addition  to  or 
a  deduction  from  the  interest  rate  paid  on  the  bonds  over  their  life." 
(Dickinson).  Defend  and  illustrate  this  .statement  in  view  of  your 
definition  of  interest. 

155. 

A.  In  1910  a  trustee  buys  for  investment  $10,000.00  (par  value) 
Penna.  R.  R.  6%  bonds  due  1921  at  1 12.    At  the  end  of  six  months  he 
receives  $300.00.    How  much  does  a  life  tenant,  who  is  entitled  to  all 
of  the  "income,"  receive? 

B.  He  buys  100  shares  Penna.  R.  R.  stock  at  112.    At  the  end 
of  six  months  he  receives  a  dividend  of  $300.00.    How  much  does  the 
life  tenant  receive? 

156. 

A  corporation  issues  $100,000  of  7%  2O-year  bonds  at  $111.56, 
giving  a  yield  of  6%,  and  $100,000  of  4%  lo-year  bonds,  at  $76.89, 
giving  a  yield  of  6%.  At  the  end  of  a  half-year  they  pay  $5,500  in 
interest.  Give  entries  made  at  time  of  issuing  bonds  and  of  paying 
interest. 

157- 

To  what  should  the  discount  on  bonds  sold  for  construction  pur- 
poses and  the  expense  of  disposing  of  such  bonds  be  charged?  Give 
reasons. 

158. 

A  corporation  sells  its  first  mortgage  bonds  at  $10,000  premium 
and  its  second  mortgage  bonds  at  $10,000  discount.  Give  your  views 
as  to  the  proper  treatment  of  these  items  of  premium  and  discount. 


68  PROBLEMS  IN  ACCOUNTING 

159- 

Buncombe  &  Company,  Ltd.,  issued  $500,000  5%  Debenture 
Bonds  in  consideration  of  $1,080  for  every  $1,000  bond.  The  sub- 
scribers for  these  bonds  were  to  pay  as  follows : 

On  January  i,  $580.00 
On  July  i,  500.00 

All  the  amounts  were  received  by  the  company  on  the  due  dates. 
Make  the  necessary  Journal  and  Cash  Book  entries  and  post  to  the 
ledger. 

1 60. 

An  insurance  company  buys  $50,000  J%  lo-year  bonds  at  116  for 
investment.  The  bonds  will  mature  at  the  end  of  five  years. 

1 i )  How  should  this  purchase  be  entered  on  the  balance  sheet  ? 

(2)  Give  the  journal  entry  which  would  correctly  record  the 
facts  upon  the  receipt  of  the  first  yearly  interest  payment. 


The  Toledo  Paper  Company,  finding  that  it  can  use  to  advantage 
additional  capital,  issues  $100,000  ist  Mortgage  2O-year  Bonds  bear- 
ing 5%  interest.  It  sells  these  bonds  at  96.  Give  the  journal  entry 
on  the  books  of  the  corporation. 

J.  M.  Davidson  buys  $10,000  of  the  bonds  of  The  Toledo  Paper 
Company  at  the  market  price  of  96.  What  journal  entry  will  David- 
son make  ? 

162. 

A  corporation  issues  $100,000  of  5%  bonds,  payable  in  fifteen 
years,  with  interest  payable  semi-annually,  and  receives  $105,411.33. 
This  gives  a  4^%  basis.  Six  months  later  the  corporation  pays 
interest  on  the  bonds  amounting  to  $2,500. 

What  entry  should  the  holder  of  a  $1,000  bond  make  in  his  books 
when  he  receives  his  first  interest  ? 

What  entry  should  the  corporation  make  when  it  pays  its  first 
interest,  and  how  does  that  entry  affect  its  income  sheet,  or  its  balance 
sheet,  or  both  ? 

163. 

A  and  B  are  dealers  in  bonds  and  share  profits  in  the  proportion 
of  75%  to  A  and  25%  to  B.  They  engage  C  to  sell  bonds,  agreeing 
to  pay  him  a  salary  equal  to  25%  of  the  net  profits  to  be  divided 
between  the  partners. 


PROBLEMS  IN  ACCOUNTING  69 

During  the  continuance  of  C's  contract  the  firm  purchases 
$100,000  of  Waterville  Traction  Company  first  mortgage  $%  bonds 
on  a  4%  basis.  The  bonds  have  eighteen  months  to  run,  interest  pay- 
able semi-annually  (three  interest  periods). 

(a)  The  firm  holds  the  Waterville  bonds  till  maturity.    Prepare 
a  statement  of  the  Waterville  bond  accounts,  showing  cost,  interest, 
and  amortization. 

(b)  The  total  profit  for  the  first  year  of  C's  contract  is  $10,000. 
Show  the  division  of  this  profit. 

164. 

Fill  in  the  missing  items  in  the  following  table  and  tell  how  you 
know  what  items  to  add : 

Market  Int.      Bond  Int.     Accumulation      Book  Value  Par 

$98,558.06          $100,000 
$1,971.16          $1,500.00 

1,980.58  1,500.00 

1,990.20  1,500.00 

Could  you  fill  in  the  accumulation  column  directly,  without  cal- 
culating or  using  the  market  interest,  if  you  knew  the  market  interest 
rate?  If  so,  how? 

165. 

The  theoretical  book  value  of  a  5%  bond  on  January  1st  is 
$10,136.47  (on  a  basis  of  4%),  and  that  is  what  you  pay  for  it.  The 
value  on  July  i  is  $10,089.20.  On  July  I  you  receive  as  interest  on 
the  bond  $250,  or  at  the  rate  of  5%  a  year. 

What  should  you  credit  on  your  books  for  that  $250? 

On  August  i  you  buy  another  $10,000  of  these  bonds  for  $10,- 
122.83,  which  includes  accrued  interest.  The  theoretical  book  value 
of  the  bond  for  the  subsequent  Jan.  i  is  $10,040.98. 

What  will  you  debit  at  the  time  of  purchase  ? 

What  should  you  credit  when  the  $250  interest  on  the  last  pur- 
chase is  received  on  January  i  ? 

. 

A  corporation  issued  $500,000  par  value  2O-year  bonds,  interest 
at  4%  payable  semi-annually.  These  bonds  were  sold  to  yield  5%. 
After  5  years  the  corporation,  needing  more  capital,  issues  $2,000,000 
par  value,  6%,  2o-year  bonds,  interest  payable  semi-annually.  Part 
of  these  are  exchanged  for  the  entire  original  issue  of  4%  bonds  and 


70  PROBLEMS  IN  ACCOUNTING 

the  remainder  are  sold.  The  whole  transaction  is  carried  through  on 
the  basis  of  a  5%  yield.  The  value  of  the  6%  bonds  on  this  basis  was 
$2,251,028,  while  the  value  at  the  time  of  refunding  of  the  4%  bonds 
was  $447,674.25. 

Give  the  journal  entries  on  the  books  of  the  corporation  at  the 
time  of  the  exchange  of  the  6%  bonds  for  the  4%'s. 


A  bond  (interest  6%  payable  semi-annually)  whose  par  value  is 
$1,000,  has  been  purchased  to  yield  5%.  The  bond  is  due  two  years 
from  the  date  of  purchase.  The  purchase  price  is  $1,018.81.  What 
entries  should  be  made  on  the  books  of  the  purchaser 

(a)  When  he  acquires  the  bond? 

(b)  At  each  interest  payment? 

(c)  At  date  of  maturity? 
Give  actual  figures. 

168. 

You  buy  a  bond  on  Jan.  i  for  $10,449.13,  which  is  its  theoretical 
value  on  a  4%  basis.  On  Mar.  i  you  buy  another  like  it  and  pay 
$10,518.79,  which  includes  accrued  interest.  On  July  i  you  receive 
your  semi-annual  interest  of  $250  on  each  bond.  The  book  value  of 
the  two  bonds  on  July  i  is  $20,816.22. 

What  entry  should  you  make  on  your  books  for  the  original  pur- 
chase ? 

What  for  the  March  ist  purchase? 

What  for  the  interest  received  on  July  i  ? 

The  book  value  of  the  two  bonds  on  the  subsequent  January  i  is 
$20,732.55.  You  sell  them  on  October  i  for  $21,030. 

How  much  do  you  make  or  lose  on  the  sale  ? 

169. 

You  buy  a  bond  on  Jan.  i,  for  $10,560,  which  is  its  value  on  a  4% 
basis.  On  Mar.  I,  you  buy  another  like  it  and  pay  $10,665.50,  which 
includes  accrued  interest.  On  July  i,  you  receive  your  semi-annual 
interest  of  $300  on  each  bond.  The  book  value  of  the  bonds  on  July  i 
is  $20,942.  What  entry  should  you  make  on  your  books  at  the  time 
of  the  original  purchase  ?  What  for  the  Mar.  i  purchase  ?  What  for 
the  interest  received  on  July  I  ? 


PROBLEMS  IN  ACCOUNTING  7I 

The  book  value  of  the  two  bonds  on  the  subsequent  Jan  i  is 
$20,762.  You  sell  them  on  Oct.  I  for  $21,200.  How  much  do  you 
make  or  lose  on  the  sale  ? 

170  7-7  V 

A  corporation  has  outstanding  $20,000,000  first  mortgage  bonds, 
interest  7%,  payable  semi-annually  on  January  ist  and  July  i.  These 
bonds  fall  due  as  follows  : 

$5,000,000  on  Jan.  i,  1918 
5,000,000  on  Jan.  i,  1920 
5,000,000  on  Jan.  i,  1922 
5,000,000  on  Jan.  I,  1924 

This  $20,000,000  issue  is  to  be  refunded  as  of  January  i,  1916  on 
a  3l/2%  basis.  Allowance  is  to  be  made  for  the  difference  in  interest 
for  the  remainder  of  the  lives  of  the  various  bonds,  and  such  differ- 
ence is  to  be  paid  in  bonds. 

(a)  What  amount  of  bonds  must  be  issued? 

(b)  This  same  corporation  has  outstanding  $10,000,000  of  in- 
come bonds  bearing  5%  interest.    The  auditor  decides  that  the  Old 
Bond  account  should  be  debited  $20,000,000,  and  the  New  Bond 
account  credited  the  whole  amount  of  the  issue,  —  the  excess  of  the 
new  over  the  old  bonds  being  charged  against  income  for  1914.    The 
entries  are  made  accordingly. 

As  a  result  of  this  entry  no  net  income  was  left  to  pay  the  interest 
on  the  income  bonds. 

Have  the  income  bondholders  any  redress  in  the  matter  ? 

(c)  What  will  be  the  proper  journal  entries  at  the  time  of  the 
refunding? 

(d)  What  will  be  the  proper  journal  entries  on  July  i,  1916  and 
on  Jan.  i,  and  July  i,  1917  to  1924? 


There  were  purchased  December  31,  1907,  $100,000  of  Altoona 
4^'s  for  $103,394.43  ex.  interest. 

On  June  30,  1909  half  of  the  bonds  were  sold  for  $52,418.55  ex. 
interest. 

Given  that  the  bonds  are  semi-annual  and  that  the  price  paid  is 
such  as  to  net  the  investor  the  nominal  rate  of  4%  per  annum,  that  is 
2%  semi-annually,  determine  the  profit  made  from  the  sale  and  the 
interest  revenue  for  the  two  years  ended  December  31,  1909.  Give 
an  analysis  of  the  Bond  Ledger  account  as  it  would  appear  at  the 
close  of  business  December  31,  1909. 


72  PROBLEMS  IN  ACCOUNTING 

172. 

A  corporation  authorizes  an  issue  of  $1,000,000  of  bonds.  The 
trust  company  issues  and  certifies  $500,000  of  these  bonds  to  Decem- 
ber 31,  1914.  On  this  date  the  company  sells  $200,000  of  bonds, 
pledges  $200,000  as  collateral  security  for  the  payment  of  its  notes, 
and  has  $100,000  of  bonds  in  the  treasury.  How  should  this  issue  of 
bonds  appear  on  the  balance  sheet  of  the  corporation  on  December 


173- 

The  payment  made  for  building  a  bridge  is  $1,200,000  of  the  com- 
pany's 4%  bonds.  The  same  bridge  could  have  been  built  for 
$1,080,000  in  cash.  Make  the  proper  journal  entries  upon  the  com- 
pletion of  this  transaction. 

174. 

The  following  argument  is  presented  by  an  official  of  the  com- 
pany, in  view  of  the  facts  stated  in  Problem  282  :  "The  bridge  cannot 
be  built  without  capital  any  mor^t|a£f\  it  can  be  built  without  draw- 
ings. The  discount  on  the  bonds  is  a  cost  of  acquiring  the  bridge 
just  as  much  as  the  wages  of  the  engineer  who  draws  the  plans,  for 
the  full  face  value  of  the  bonds  must  be  returned  to  the  bond- 
holders. The  bridge  should  stand  on  the  books  as  costing  $1,200,- 
ooo."  Discuss  this  argument  fully. 


The  A.  B.  Banking  Co.  of  New  York  borrows  £20,000  from  C.  D. 
&  Co.,  of  London,  for  60  days  at  4%,  money  being  at  6%  in  New 
York.  The  rate  of  exchange  is  4.87^4  when  the  loan  is  made  and 
4.88)4  when  it  is  repaid.  If  brokerage  is  1/32%,  cable  charges  $15, 
how  much  is  saved  or  lost  by  borrowing  abroad?  (Interest  on  basis 
of  360  days  to  the  year.) 


CHAPTERS  VIII  AND  IX 

176. 

A  corporation's  income  sheet  for  1912  showed  a  surplus  for  the 
year  of  $150,000.  In  1913  the  surplus  appearing  on  the  income  sheet 
was  $200,000.  Are  these  figures  consistent  with  the  following  items 
appearing  on  the  liabilities  side  of  the  balance  sheet  for  the  years  in 
question  ? 

1911  1912  1913 

Reserve  for  Accrued  Depreciation $120,000    $145,000    $175,000 

Reserve  for  Addition  to  Plant 100,000       150,000      200,000 

Contingent  Reserve 100,000       150,000 

Surplus 75o,ooo      700,000      800,000 


177. 

The  A.  B.  C.  Co.  started  business  January  i,  1911.  The  follow- 
ing Balance  Sheet  is  an  accurate  representation  of  the  condition  ot 
the  business. 


Real  Estate  and 
Buildings $200,000.00 

Plant  and  Machinery  280,000.00 

Cash  and  other  cur- 
rent assets 70,000.00 


Capital  Stock $350,000.00 

Mortgage 150,000.00 

Bills  Payable 50,000.00 


$550,000.00 


$550,000.00 


After  operating  three  years,  the  Company  shows  the  following 
Balance  Sheet.  What  is  the  proprietorship  as  shown  by  this  state- 
ment? 


Real  Estate  and 
Buildings $200,000.00 

Plant  and  Machinery  300,000.00 

Cash  and  other  cur- 
rent assets 157,000.00 

Profit  and  Loss 10,000.00 


Capital  Stock $350,000.00 

Mortgage 150,000.00 

Bills  Payable 60,000.00 

Accounts  Payable . . .     50,000.00 
Reserve  for  Accrued 

Depreciation 57,000.00 


$667,000.00 


$667,000.00 


74  PROBLEMS  IN  ACCOUNTING 

An  examination  of  the  accounts  discloses  that  they  are  correct 
except  for  the  following  facts  :  In  1911,  23  machines  were  purchased 
at  a  cost  of  $25,000  to  replace  the  same  number  of  machines  aband- 
oned whose  original  cost  was  $13,000;  the  entire  $25,000  was  charged 
to  operating  expenses  as  renewals.  The  allowance  for  depreciation 
iwas  $18,000,  while  $12,000  would  have  been  adequate.  In  1912, 
$9,000,  charged  to  Maintenance,  was  really  improvement  to  build- 
ings. In  this  year,  the  allowance  for  depreciation  was  $20,000,  while 
$13,500  would  have  been  adequate.  In  1913,  16  new  machines,  cost- 
ing $21,000,  were  purchased  and  charged  to  Operating  Expense. 
These  replaced  16  machines  whose  original  cost  was  $12,500.  De- 
preciation to  the  amount  of  $19,000  was  charged  when  $14,000  would 
have  been  adequate. 

(a)  Rewrite  the  Balance  Sheet  for  January  I,  1914  in  the  light 
of  these  discoveries. 

(b)  What  is  the  proprietorship  as  shown  by  the  Balance  Sheet 
as  so  reconstructed? 


A  manufacturing  corporation  handling  a  patent  device  issued 
bonds  aggregating  $375,000,  payable  in  installments  of  $25,000  an- 
nually for  fifteen  years.  Having  in  mind  possible  competition  and 
obsolescence  of  its  property,  it  was  provided  that  the  sinking  fund 
installments  be  charged  against  earnings.  The  president  of  the 
company  had  a  contract  under  which  he  was  to  receive  a  bonus  of  5% 
of  the  net  profits  in  addition  to  his  salary,  but  it  was  specifically  pro- 
vided that  as  to  him  the  charges  against  earnings  should  not  include 
the  sinking  fund  installments.  In  making  up  the  first  year's  accounts 
the  auditors  decided  that  the  depreciation  reserve,  as  nearly  as  could 
be  determined,  should  be  stated  as  $25,000  and  this  amount  was  in- 
cluded among  the  operating  expenses.  When  their  report  was  sub- 
mitted to  the  directors,  the  president  referred  to  his  contract  and 
stated  that  the  sinking  fund  provision  and  depreciation  were  synony- 
mous and  that  he  was  entitled  to  5%  of  the  earnings  before  any  de- 
duction was  made  for  depreciation.  The  matter  is  referred  to  you 
as  an  accountant  ;  what  is  your  opinion  ? 

179. 

The  secretary  of  a  manufacturing  corporation  which  has  no  sur- 
plus has  undertaken  to  close  the  books.  The  balance  to  the  credit  of 
the  profit  and  loss  account  is  just  sufficient  to  enable  the  directors  to 
declare  a  small  dividend,  which  they  propose  to  do.  At  this  juncture 
the  services  of  an  accountant  are  secured.  He  finds  that  no  provision 


PROBLEMS  IN  ACCOUNTING  75 

for  depreciation  has  been  made,  and  that  all  expenditures  for  repairs 
and  renewals,  amounting  to  more  than  the  proposed  dividend,  have 
been  charged  direct  to  plant  account.  Show  the  nature  of  any  cor- 
rective entries  which  should  be  made.  What  would  be  the  effect  on 
the  balance  sheet  of  such  entries  ? 

180. 

The  State  of  New  York  requires  telephone  companies  to  main- 
tain a  Depreciation  Reserve  to  take  care  of  the  actual  depreciation  of 
tangible  assets.  The  Treasurer  of  a  certain  telephone  company  re- 
ported Cash  in  Bank  $15,000  among  his  assets.  Among  his  liabili- 
ties he  reported  a  loan  from  the  same  bank  of  $12,000.  He  was 
receiving  3%  interest  on  the  cash  in  bank  and  paying  6%  interest 
on  the  loan  from  the  bank.  When  asked  why  he  did  not  use  the 
cash  in  Bank  instead  of  borrowing  he  replied:  "Your  requirement 
with  respect  to  Depreciation  Reserves  prevents  me  from  doing  so." 
Write  him  a  brief  letter  setting  him  right.  Tell  him  how  he  should 
keep  these  accounts. 

181. 

When  auditing  the  books  and  accounts  of  a  concern  operating 
a  large  machine  shop  you  find  that  the  machinery  and  tools  have 
been  regularly  depreciated  each  year,  that  their  value  as  shown  by 
the  books  is  considerably  less  than  the  value  as  shown  by  an  inde- 
pendent appraisal,  and  that  the  firm  has  set  up  the  higher  values  as 
shown  by  the  appraisal  on  the  books.  To  what  account  would  you 
recommend  the  corresponding  credit  to  go,  and  for  what  reasons  ? 

Ite. 

Defend  the  statement  that  Maintenance  should  be  charged  not 
when  the  repairs  are  actually  made,  but  should  be  spread  on  some 
uniform  basis  over  the  life  of  the  particular  item  of  plant  involved. 

The  actual  cost  of  repairs  in  a  certain  plant  for  the  years  1908- 
1913  inclusive  was  as  follows : 

1908 $  400,000 

1909 600,000 

1910 550'000 

191 1 450,000 

1912 640,000 

1913 600,000 

$3,240,000 


76 


PROBLEMS  IN  ACCOUNTING 


If  Maintenance  charges  had  been  made  on  the  basis  of  an  even 
percentage  of  Gross  Earnings,  they  would  have  been  as  follows : 

1908 $  420,000 

1909 585,000 

1910 540,000 

I9H 495,000 

1912 630,000 


$3,240,000 

Assuming  that  the  method  suggested  in  185  had  been  followed 
and  the  charges  to  Income  for  Maintenance  had  been  on  the  even 
percentage  basis  here  shown,  what  entries  would  have  been  made 
each  year  to  provide  for  Maintenance  ? 


A  syndicate  owning  in  fee  large  tracts  of  timber  land  makes  a 
contract  with  a  lumber  company  to  sell  1,000,000,000  feet  of  stand- 
ing timber,  at  the  rate  of  $3  per  M  feet.  The  lumber  company  agrees 
to  cut  and  pay  for  this  timber  within  a  period  of  six  years,  and  guar- 
antees that  the  following  shall  be  the  minimum  amount  to  be  cut  and 
paid  for  in  each  of  the  six  years,  payments  to  be  made  in  cash  at 
the  end  of  each  six  months  : 

1st  year  .......     80,000,000  feet     $   240,000    June  30    $    120,000 

Dec.  31          120,000 


2d 

4th 

5th 
6th 


90,000,000 
100,000,000 

120,000,000 

150,000,000 
200,000,000 


270,000 

June  30 

135,000 

Dec.  31 

135,000 

300,000 

June  30 

150,000 

Dec.  31 

150,000 

360,000 

June  30 

180,000 

Dec.  31 

180,000 

450,000 

June  30 

225,000 

Dec.  31 

225,000 

600,000 

June  30 

300,000 

Dec.  31 

300,000 

$2,220,000 

$2,220,000 

The  syndicate  desiring  to  anticipate  the  payments  under  its  con- 
tract, applies  to  its  bankers  for  the  cash  value  of  the  contract,  offering 
as  security  the  contract  itself  and  a  mortgage  on  the  timber  land. 
What  is  the  present  worth  of  the  contract,  calculated  on  a  6%  basis? 


PROBLEMS  IN  ACCOUNTING  77- 

185. 

Before  making  the  charges  referred  to  below,  the  profit  and 
loss  account  of  a  corporation  for  the  year  shows  a  credit  balance  of 
$60,000.  The  accounts  receivable  are  $40,700,  and  the  plant  and 
machinery  account  is  $55,000.  The  6  per  cent  preferred  stock  is 
$50,000  and  the  common  $150,000.  It  is  decided  (i),  to  provide, 
out  of  the  above  named  profit  and  loss  balance  7^2  per  cent  deprecia- 
tion on  plant  and  machinery;  (2)  to  write  off  as  uncollectable  $1,500 
of  the  accounts  receivable  and  to  make  a  reserve  of  2  per  cent  on 
the  remainder  of  the  accounts  receivable  to  provide  for  possible 
losses  thereon;  (3)  to  provide  for  the  preferred  stock  dividend  for 
the  year;  (4)  to  provide  for  a  bonus  of  $7,500  to  the  employees; 
(5)  to  provide  for  a  dividend  on  the  common  stock  of  15  per  cent 
for  the  year  and  (6)  to  carry  the  balance  then  remaining  on  the  profit 
and  loss  account  to  undivided  profit  account. 

Draft  the  journal  entries  to  give  effect  to  the  above. 

186. 

(a)  Defend  the  statement  that  Maintenance  should  be  charged 
not  when  the  repairs  to  plant  are  actually  made,  but  should  be  spread 
on  some  uniform  basis  over  the  life  of  the  particular  item  of  plant 
involved. 

(b)  The  actual  cost  of  repairs  in  a  certain  plant  for  the  years 
1908-1913  inclusive  was  as  follows  : 

1908  ..........................  $  400,000 

1909  ..........................  600,000 

1910  ..........................  550,000 

1911  ..........  .-  ...............  450,000 

1912  ..........................  640,000 

1913  ...........  .  ..............  600,000 

$3,240,000 

If  Maintenance  charges  had  been  made  on  the  basis  of  an  evert 
percentage  of  Gross  Earnings,  they  would  have  been  as  follows  : 

1908  ..........................  $  420,000 

1909  ..........................  585,000 

1910  ..........................  540,000 

1911  ..........................  495»°oo 

1912  ..........................  630,000 

1913  .......................... 


$3,240,000 


78 


PROBLEMS  IN  ACCOUNTING 


Assuming  that  the  method  suggested  in  (a)  has  been  followed, 
and  the  charges  to  Income  for  Maintenance  had  been  on  the  even 
percentage  basis  here  shown,  what  entries  would  have  been  made 
each  year  to  provide  for  Maintenance  ? 

187. 

The  following  is  the  Balance  Sheet  of  the  X.  Y.  Z.  Co.  on  Dec. 
31,  1910. 

Capital  Stock $500,000 

Bills  Payable 100,000 

Accts.  Payable 20,000 


Real  Estate  and  Plant.  .$420,000 

Bills  Rec 60,000 

Accts.  Rec 19,000 

Supplies  Sy°°° 

Cash  40,000 

Merchandise 96,000 


Profit  and  Loss 20,000 


$640,000  $640,000 

(a)  An  investigation  shows  -that  a  decrease  in  the  value  of  the 
real  estate  of  $12,000  has  been  written  off  the  real  estate  account  and 
debited  to  Profit  and  Loss;  also  that  improvements  in  the  plant 
amounting  to  $16,000  have  been  charged  to  expense.    Make  the  cor- 
rected Balance  Sheet. 

(b)  Suppose  the  investigation  had  shown  an  appreciation  in 
the  value  of  the  Real  Estate  of  $20,000  which  had  been  carried  to 
Profit  and  Loss,  and  that  repairs  and  replacements  to  the  amount  of 
$18,000  had  been  charged  to  expense.     Correct  the  Balance  Sheets 
and  the  above  valuation  of  the  active  assets. 


1 88. 

Product  by  year. 

1900  12 

1901  ii 

1902  ii 

1903  ii 

1904  5 

1905  10 

1906  10 

1907  9 

1908  9 

1909  12 
100 


Present  value  of 
output  at  5%. 
$77.70445 

69.58975 
62.06919 
54.17264 
45.88131 


35-33403 
27.10077 

1945578 
11.42856 


PROBLEMS  IN  ACCOUNTING  79 

The  above  table  gives,  in  the  first  column,  the  net  earnings,  by 
years,  for  a  certain  machine,  before  deducting  depreciation.  In  the 
second  column  is  shown  the  present  value  of  these  future  earnings, 
at  the  beginning  of  each  of  the  years,  computed  on  a  5%  basis. 

(a)  From  the  data  above  presented  compute  (i)  the  deprecia- 
tion by  years,  on  the  basis  of  declining  value  (2)  the  annual  profit. 

(b)  Construct  a  table  showing  the  depreciation  by  years  on  the 
basis  of  an  even  charge,  and,  also,  the  profit  by  years. 

(c)  Which  of  the  above  methods  of  writing  off  depreciation 
gives  greatest  uniformity  as  regards  (i)  annual  profit;  (2)  rate  of 
return  on  the  investment;  (3)  cost  per  unit  of  product?    Explain 
fully. 

189. 

What  do  you  understand  by  the  term  "depreciation,"  and  how 
should  it  be  provided  for  on  the  books  of  a  manufacturing  company 
owning  its  plant  and  equipment?  Wherein  does  the  charge  for 
depreciation  differ  from  the  charge  for  repairs  and  renewals?  Can 
the  charges  for  depreciation  be  avoided  through  any  system  of  book- 
keeping ? 

I9°' 

Describe  two  methods  of  treating  the  allowance  for  depreciation 
of  machinery  on  both  the  books  and  the  balance  sheet. 


What  are  the  various  methods  of  determining  the  amount  to  be 
written  off  the  cost  of  a  lease  for  a  term  of  years?  Explain  which 
method  you  prefer  and  give  your  reasons. 

192. 

A  mercantile  company  buys  the  leasehold  to  a  site  for  $10,000.     n 
The  leasehold  has  5  years  to  run.    How  would  you  treat  this  transac- 
tion in  the  accounts  (a)  at  the  time  of  purchase,  (b)  each  year  dur- 
ing the  remaining  life  of  the  leasehold?  Give  entries. 

193- 

A  company  leases  for  a  term  of  fifty  years  certain  unimproved 
property  for  factory  purposes,  paying  a  ground  rent  therefor  of 
$1,000  a  year.  The  company  erects  certain  buildings  at  a  cost  of 
$40,000,  which  are  to  pass  to  the  owner  of  the  fee  at  the  termina- 
tion of  the  lease.  Without  going  into  the  mathematics  of  the  matter 
state  how  you  would  treat  this  proposition  in  the  books  of  account. 


8o  PROBLEMS  IN  ACCOUNTING 

194. 

A  public  service  corporation  that  regularly  sets  aside  from  its 
profits  a  sufficient  amount  to  provide  for  depreciation  and  credits 
the  amount  to  Depreciation  Reserve,  removes  part  of  its  old  plant 
and  replaces  it  with  a  larger  and  more  costly  one.     The  old  plant 
is  sold  for  scrap.     How  should  the  cost  of  the  new  plant  and  the 
proceeds  from  the  sale  of  the  old  plant  and  the  excess  of  cost  of  old 
plant  over  scrap  be  treated  in  the  accounts  of  the  company?    Give 
reasons. 

195. 

The  following  statistics  are  taken  from  the  books  of  a  corpora- 
tion: 

Capital  Stock  .............................  $400,000 

Merchandise  Inventory  ....................     954OO 

Machinery    ..............................    125,000 

Undivided    Profits  ........................          800 

Surplus    (Credit)  .........  .r  ...............     32,900 

To  cover  actual  depreciation  suffered  during  past  years  but  which 
has  not  been  written  off  before,  the  directors  decide  to  set  aside  a 
machine  depreciation  reserve  of  10%  ;  they  also  decide  to  pay  a 
dividend  of  5%.  What  entries  are  necessary? 

196. 

A  factory  cost  $100,000.00.  Depreciation  amounting  to  $40,000.00 
has  been  charged.  An  engineer's  appraisal  shows,  actual  value  ot 
$80,000.00.  Should  there  be  any  adjustment  of  the  plant  account, 
and  how  would  the  matter  of  depreciation  or  appreciation  affect  the 
current  year's  profit  and  loss  account  ? 


You  find  in  the  journal  of  a  corporation's  books  the  following 
entries  : 

Depreciation   .......................  $12,000 

To  Plant  ........................  $12,000 

Undivided  Profits  ...................    10,000 

To  Depr.  Reserve  .................  10,000 

Depr.  Res.  Fund  ....................   10,000 

To  Cash  ........................  10,000 

(a)  Interpret  these  entries. 

(b)  What  effect  have  these  entries  on  the  asset  side  and  on  the 
liability  side  of  the  balance  sheet  ? 

(c)  What  effect  have  these  entries  on  the  amount  of  profits 
available  for  dividends? 


PROBLEMS  IN  ACCOUNTING  81 

198. 

"The  method  that  should  be  adopted  to  ascertain  the  net  earnings 
of  a  street  railway  company,  is  to  deduct  from  the  gross  earnings, 

(a)  Operating  Expenses,  and  maintenance; 

(b)  Interest  upon  the  bonded  indebtedness; 

(c)  Depreciation ;  and 

(d)  Where  the  city  franchise  or  ordinance  operated  under  is  of 
limited  duration,  then  a  sinking  fund  necessary  to   retire 
bonds,  when  the  franchise  expires,  for  then  the  business 
ceases." 

The  above  extract  is  from  an  "Argument  for  the  Establishment  of 
Rules  and  Principles  That  Should  Guide  the  Board  of  Public  Works 
in  Assessing  Street  Railway  Property." 

You,  as  City  Auditor,  are  asked  to  write  an  opinion  on  the  cor- 
rectness of  the  principles  above  set  forth,  especially  (d). 

199. 

A  gas  company  with  a  capital  of  $5,000,000  and  a  surplus  of 
$1,000,000  had  made  no  provision  for  the  depreciation  of  its  property 
till  the  directors  reviewed  the  valuation  of  the  property  accounts  and 
decided  to  write  off  $2,000,000,  thus  creating  an  apparent  deficit  of 
$1,000,000.  The  net  earnings  during  the  year  following  the  writing 
down  of  the  assets  amounted  to  $1,250,000  before  any  depreciation 
was  charged,  and  the  directors  proposed  to  pay  out  as  dividends 
$1,000,000.  What  opinion  would  you  express  as  to  this  proposition, 
if  called  on  by  the  board  before  final  action  was  taken  ? 

200. 

The  company  referred  to  in  the  last  problem,  five  years  subse- 
quent to  the  time  of  writing  down  its  assets,  reconsidered  the  action 
taken  at  that  time  and  instructed  its  accounting  officer  to  write  back 
the  valuation  of  the  assets  and  thus  apparently  add  $2,000,000  to  its 
surplus,  (i)  What  entries  would  be  required?  (2)  If  you  were 
auditing  the  accounts  of  a  corporation  which  owned  practically  all 
of  the  capital  stock  of  this  gas  company,  how  would  you  regard  both 
the  writing  down  and  the  writing  up  of  the  assets  of  the  subsidiary 
company  on  the  accounts  of  the  company  you  were  auditing? 

201. 

An  individual  buys  a  fleet  of  ships.  He  then  forms  a  corporation 
to  take  them  over  at  double  the  sum  paid  by  him,  payable  one-half  in 


82 


PROBLEMS  IN  ACCOUNTING 


debenture  bonds  of  the  company,  and  one-half  in  its  capital  stock.  A 
sinking  fund  is  to  be  provided  for  the  gradual  retirement  of  the  de- 
benture bonds.  A  public  accountant  is  called  in  at  the  end  of  five 
years  to  make  up  the  accounts.  He  insists  on  creating  a  depreciation 
fund  based  on  the  full  consideration  paid  by  the  corporation.  The 
directors  argue  that  the  depreciation  fund  should  be  based  on  the 
amount  of  debenture  bonds  issued,  on  the  theory  that  the  capital  stock 
issued  to  the  vendor  was  in  the  nature  of  a  bonus  and  did  not  repre- 
sent any  real  value.  State  your  views  regarding  the  two  proposi- 
tions. 

202. 

Below  is  a  table  of  locomotives  abandoned  by  the  A.  B.  R.  R. 
during  the  years  1907-1912.  From  the  data  given  compute  a  depre- 
ciation rate  for  locomotives  on  this  railroad. 


4000 

$  9,900.00 

$1,400.00 

23 

1911 

4001 

9,900.00 

j,  500.00 

23 

1911 

4003 

9,900.00 

1,500.00 

22 

1911 

4004 

9,900.00 

4,000.00 

6 

1911 

4005 

9,900.00 

3,500.00 

6 

1911 

4006 

9,900.00 

4,000.00 

5 

1911 

4007 

9,900.00 

3,500.00 

6 

1911 

4008 

9,900.00 

3,700.00 

5 

1911 

4051 

5,500.00 

441-38 

36 

1909 

4052 

5,500.00 

626.40 

36 

1909 

4110 

9,050.00 

800.00 

29 

1908 

4111 

7,700.00 

479-15 

25 

1908 

4112 

7,250.00 

897.01 

37 

1909 

4113 

7,700.00 

469.44 

27 

1908 

4115 

7,250.00 

469.44 

ii 

1908 

4117 

9,050.00 

878.12 

27 

1911 

4119 

7,250.00 

527-25 

36 

1908 

4120 

7,250.00 

72747 

38 

1911 

4122 

7,700.00 

1,340.74 

25 

1910 

4127 

7,250.00 

856.30 

33 

1911 

4128 

7,250.00 

886.34 

32 

1910 

4129 

7,250.00 

89L57 

3i 

1909 

4130 

7,250.00 

485-63 

30 

1908 

413! 

7,250.00 

481.93 

30 

1908 

4132 

9,000.00 

1,058.04 

32 

1911 

4134 

9,000.00 

504.51 

30 

1909 

4135 

9,000.00 

874.28 

28 

1909 

4137 

9,000.00 

443-54 

27 

1908 

PROBLEMS  IN  ACCOUNTING 


4H5 
4286 
4287 
4289 
4290 
4291 
4292 

4293 
4296 
4298 
4299 
4300 
4301 
4302 
4303 
4304 
4306 
4308 

4309 
4310 


9,000.00 

10,552.00 

10,552.00 

10,552.00 

9,050.00 

10,552.00 

10,552.00 

10,552.00 

10,552.00 

10,552.00 

7,614.22 

7,614.22 

7,614.22 

7,614.22 

7,614.22 

7,614.22 

7,614.22 

9,125.00 

9,125.00 

9,125.00 


438.45 

527-25 

770-95 

770.95 

1,038.10 

1,390.92 

794.80 

850.00 

547-6o 

491.18 

892.70 

1,172.97 

1,000.00 

1,700.00 
1,200.00 
1,200.00 

1,246.55 

898.83 

1,350.00 
1,197.05 


27 

28 
19 

20 

17 
22 
21 
20 
28 
27 
24 
24 
24 
23 
24 
24 
24 
21 

23 
23 


1908 
I008 
1009 
1007 
1009 
1910 
1009 
1909 
I008 
1908 
1912 
1912 
1912 
I9II 
1912 
I9I2 
1912 
1910 
1912 
1912 


203. 

In  making  up  the  accounts  the  master  allowed  deductions  from 
profits  for  bad  debts,  for  rents,  for  interest  paid — debiting  to  rents 
and  interest  received ;  he  allowed  for  the  market  value  of  the  mate- 
rials on  hand  when  the  infringement  began,  for  the  cost  of  those 
acquired  afterwards  to  carry  on  the  business  and  for  the  usual  sal- 
aries of  the  managing  officers.  He  refused  to  allow  the  extraordin- 
ary salaries  which  it  appeared  by  the  books  had  been  paid,  being 
satisfied  they  were  dividends  of  profit.  He  refused  to  allow  the 
value  at  the  time  they  were  issued,  of  materials  bought  for  purposes 
of  infringement.  The  market  was  a  rising  one. 

He  refused  to  allow  manufacture's  profit  and  interest  on  the 
capital  stock. 

Discuss  the  propriety  of  the  accounting. 


204. 

The  following  figures  are  taken  from  the  locomotive  records  of  a 
railroad  company. 


84  PROBLHMS  IN  ACCOUNTING 

Inventory          Acquisitions    Retirements  Depreciation 
at  cost  at  cost  at  cost 

1908  12,868,491  o     103,106 

1909  373.766     435,172 

1910  1,442,765     368,381 

1911  1,401,316     214,075 

1912  o     289,365 

Complete  the  fourth  column  in  the  above  statement,  using  a 
straight  line  depreciation  rate  on  original  cost  for  locomotives  of 
3-5%. 

205. 

A  manufacturing  corporation  has  been  operating  five  years  and 
has  among  other  accounts  the  following,  viz. :  Plant  account,  $600,- 
ooo;  Reserve  for  Depreciation,  $150,000;  Surplus,  $100,000.  The 
officers  ask  you  as  accountant  to  certify  a  statement  embracing  the 
above  items  in  the  following  form:  "Plant,"  $600,000;  Surplus  and 
reserve  accounts,  $250,000.  State  (a)  whether  you  approve  same 
and  (b)  the  reasons  supporting  your  answer. 

206. 

A  manufacturer  is  desirious  of  securing  a  partner  and  furnishes  a 
statement  covering  five  years'  operations  as  follows : 

Assets  Liabilities 

Buildings $  20,000.00  Accounts    and    Bills 

Machinery  and   Fix-  Payable  $  30,000.00 

tures 75,000.00  Sales  average  per 

Inventory  Mdse.  and  year   500,000.00 

Supplies 50,000.00  Wages  paid  per  year.    170,000.00 

Cash 5,000.00  Expense,  Selling  and 

Accounts  Receivable.     40,000.00  General,  per  year. .     35,000.00 

Material  Purchased . .   260,000.00 

Buildings  are  on  leased  ground,  lease  expires  in  ten  years,  annual 
land  rental  $1,000.00.  Buildings  revert  to  owner  at  expiration  of 
lease. 

New  machinery  when  installed  ten  years  ago  cost  $50,000.00. 
Additional  since  cost  $25,000.00;  no  depreciation  has  been  charged 
off.  All  repairs  and  replacements  charged  to  expense. 

What,  in  your  opinion,  would  be  a  fair  price  to  be  contributed  for 
a  half  interest?  Explain  fully. 


PROBLEMS  IN  ACCOUNTING  85 

207. 

The  accounts  of  a  certain  manufacturing  corporation  for  the  year 
ending  Dec.  31  showed  a  profit  of  $85,000  and  the  directors  proposed 
to  pay  $75,000  in  dividends  on  preferred  stock.  The  holders  of 
common  stock  brought  action,  alleging  that  the  value  of  the  property 
had  depreciated,  and  a  large  part  of  the  capital  of  the  company  lost 
and  that  there  could  not  be  any  profits  applicable  to  the  payment  of  a 
dividend  until  such  loss  and  depreciation  had  been  made  good. 
Comment. 

208. 

A  certain  public  service  corporation  with  all  its  property  in  one 
state  is  incorporated  in  another  state.  It  has  outstanding  $32,000,000 
of  securities  while  the  appraised  value  of  its  property  is  $25,000,000. 
In  making  application  for  a  charter  in  the  state  in  which  its  property 
is  located  this  corporation  claims  that  in  addition  to  the  $25,000,000 
appraised  value  of  its  properties  it  has  a  "going  value"  or  "going 
concern  value"  of  an  additional  $7,000,000,  thus  bringing  its  total 
property  up  to  the  amount  of  its  outstanding  securities. 

(a)  State  what  you  understand  by  "going"  value,  pointing  out 
the  difference,  if  any,  between  this  and  good-will. 

(b)  Suppose  you  are  delegated  by  the  State  to  ascertain  the 
propriety  of  the  corporation's  claim  of  $7,000,000  going  value.  State 
what  steps  you  would  take  to  verify  or  disprove  the  claim. 

- 

209. 

(a)  Explain  the  meaning  of  the  term  "good-will."  (b)  When 
may  it  properly  appear  upon  the  books  of  a  company  as  a  valuable 
asset?  (c)  What  factors  should  be  taken  into  consideration  in  plac- 
ing a  valuation  on  good-will?  ^  ., 

210. 

$50,000  of  stock  is  issued  for  a  "going  concern"  whose  property 
accounts  showed  it  to  have  a  net  worth  of  $45,000.  Nothing  was 
said  about  good  will  when  the  contracts  were  made  between  the 
owners  and  the  new  company.  How  would  you  treat  the  $5>ooo 
difference  ? 

211. 

Is  there  a  reason  why  the  goodwill  carried  as  an  asset  on  the 
books  of  a  prosperous  and  growing  manufacturing  concern  should 
be  depreciated,  amortized  or  otherwise  written  off,  and  if  so  what 
would  be  the  effect  of  such  a  depreciation,  amortization  or  writing 
off? 


/ 


86 


PROBLEMS  IN  ACCOUNTING 


212. 


In  auditing  the  books  of  a  corporation  capitalized  at  $250,000 
you  find  that  three  years  previously  they  acquired  the  business  of 
a  co-partnership  included  in  which  was  an  asset  called  "goodwill" 
valued  at  that  time  at  $25,000,  since  which  time  the  same  has  not 
been  written  down.  The  average  profits  of  the  corporation  for  the 
three  years  have  been  9%  on  the  capitalization.  How  would  you 
treat  the  item  goodwill  ?  Give  reasons. 

213. 

A  corporation  capitalized  at  $100,000.00  carries  as  an  asset  $50,- 
ooo.oo  for  goodwill.  During  the  year  it  earns  net  $25,000.00  and 
pays  a  10%  dividend.  What  disposition  would  you  advise  being 
made  of  the  remaining  $15,000?  Give  reasons. 


Comparative  Balance  Sheet.r 

Assets  —                                                    1913  1912 

Plants,  patents,  goodwill  ..............  $71,060,813  $70,685,722 

Investments  .........................      1,768,045  1,635,958 

Treasury    stock  ......................     2,058,700  2,227,117 

Inventory    ..........................    12,614,926  16,226,639 

Accounts  receivable  ...................     5,477,195  6,370,890 

Bills  receivable  .......................        586,274  606,944 

Cash  ^  .  .  ............................        723,053  803,225 

Prepaid  insurance,  taxes  ...............        222,950  229,619 

Total  Assets  ...................  $94,511,956  $98,786,114 

Liabilities  — 

Common  stock  .......................  $60,000,000  $60,000,000 

Preferred  stock  ......................   30,000,000  30,000,000 

Bills    payable  ........................     2,799,736  6,479,411 

Accounts  payable  .....................        489,031  653,185 

Accrued  liabilities  ....................        217,206  547,283 

Contingent   reserve  ...................        300,000  300,000 

Surplus    ............................        705.983  806,235 

Total   Liabilities  ...............  $94,511,956  $98,786,114 

In  the  capital  asset  item,  real  estate,  buildings,  machinery,  etc., 
are  listed  at  $12,679,151  ;  patents  at  $583,650  and  goodwill  at  $57,- 
798,000. 


PROBLEMS  IN  ACCOUNTING  87 

The  income  account  for  the  year  1913,  shows  the  following  facts 

Net  Sales $39,509.346 

Expenses 36,451,233 


Balance    3,058,113 

Misc.  Income 491,316 


Total  Income $  3,549,429 

Treasury  Stock  reduced  from  Cost  to  par 

value $  168,417 

Depreciation  541>359 

Interest  on  Bills  Payable 239,906 


Net  Profit $  2,599,747 

Preferred  Dividends 2,100,000 

Common  Dividends 600,000 


Deficit  for  year $      100,253 

"Profits  for  the  B.  F.  Goodrich  (rubber)  Company  and  sub- 
sidiary companies  in  the  year  ended  Dec.  31,  1913,  applicable  to 
dividends  was  $2,599,747." — The  Chicago  Record-Herald,  Feb.  24, 
1914. 

(a)  Comment  on  the  above  statement  assuming  that  the  figures 
in  the  Company's  financial  statements  are  correct. 

(b)  What  would  you  say  as  to  the  value  of  the  goodwill  item 
appearing  in  the  balance  sheet? 


CHAPTER  XI 

215. 

The  following  accounts  are  found  on  the  books  of  a  corporation : 
reserve  fund;  depreciation  on  furniture;  bad  debt  reserve;  bond 
redemption  account ;  bills  receivable ;  rents  of  properties  owned ; 
dividend  on  preferred  stock.  State  which  would  enter  the  profit  and 
loss  account  and  balance  sheet,  and  which  would  show  debit  and 
which  credit  balances. 

216. 

"A  balance  sheet  can  only  be  an  approximation  to  facts,  the  degree 
of  approximation  depending  upon  the  skill  and  accuracy  with  which 
the  estimates  ure  made."  (Dickinson,  Accounting  Practice  and  Pro- 
cedure.) Explain. 

217. 

For  each  of  the  businesses  whose  figures  are  shown  below, 
indicate  whether  there  is  a  discrepancy,  a  deficit,  or  neither  of 
these.  The  figures  are  for  the  balance  sheet.  (Show  your  figures 
in  the  form  of  a  Balance  Sheet) 

Partners $65,000      Capital  Stock  $65,000 

Merchandise  on  hand ....  34,000  Merchandise  on  hand ....   34,000 

Accounts  Rec 35,ooo     Accounts    Rec 45,000 

Accounts  Pay 15,000     Accounts  Pay 15,000 

Cash   12,000     Cash   13,000 

Real    Estate 45,000     Real    Estate 35,ooo 

Bills    Pay 47,000     Bills    Pay 49,000 

Profit  and  Loss 2,000 

218. 

On  the  basis  of  the  following  balance  sheets  show  what  has  be- 
come of  the  profits  earned,  no  dividend  having  been  declared : 

ASSETS. 

1913  1914 

Real  Estate  $  50,000  $  52,000 

Plant  and  Machinery 85,000  76,500 

Patents  and  good- will 20,500  20,500 


PROBLEMS  IN  ACCOUNTING 


89 


Horses  and  Wagons 15,000  12,750 

Inventory 49,000  65,000 

Accounts  Receivable 35,ooo  33,000 

Cash    22,000  21,150 

Agency  Investments 15,000 

Total    $276,500  $295,900 

LIABILITIES. 

Capital  Stock $200,000  $200,000 

Creditors,    open   accounts 16,000  17,000 

Bills   Payable 30,000 

Mortgage    25,000 

Profit  and  Loss 30,500  53,900 

Total    $276,500  $295,900 

219. 

ASSETS. 

1912  1913 

Real    Estate $  55,000  $  57,000 

Plant    95,ooo  85,500 

Accts.  Rec 45>5°°  43>5°° 

Mdse.   (Invy.) 59,ooo  73,75° 

Cash 12,000  11,150 

Investments 10,000 

Total    $266,500  $280,900 

LIABILITIES. 

Capital  Stock .$200,000  $200,000 

Accts.  Pay 20,000  12,000 

Bills  Pay 26,000 

Surplus    20,500  28,900 

Mortgage 20,000 

Contingent    10,000 

Reserve       10,000 

Total    $266,500  $280,900 

What  were  the  profits  for  the  year?    Prepare  tabulation  show- 
ing what  has  been  done  with  these  profits. 


PROBLEMS  IN  ACCOUNTING 


220. 

ASSETS. 


1912 


Real  Estate  and  Plant $  60,000 

Machinery    10,000 

Merchandise  39,321 

Accounts  Receivable 30,219 

Loans  to  Directors 10,000 

Cash 10,600 


1913 

$  57,000 
9,000 

44,77J 
26,109 

15,000 
7,260 


Total $160,140        $159,140 

LIABILITIES. 

Capital     Stock $100,000 

Notes     Payable 20,000 

Accounts  Payable 30,140 

Surplus    ^ . .      10,000 


$100,000 

22,000 
27,140 

10,000 


Total $160,140        $159,140 

Assume  that  you  are  the  Cashier  of  a  local  bank  and  a  request 
is  made  by  the  corporation  whose  balance  sheets  are  shown  above 
for  a  loan  of  $20,000.  State  whether  or  not  you  would  grant  the 
accommodation  and  give  your  reasons  fully. 

221. 

A  concern  owns  a  parcel  of  real  estate  which  cost  it  $500,000. 
There  is  a  purchase  money  mortgage  on  it  for  $350,000.  You  are 
asked  to  enter  the  same  in  the  balance  sheet  at  $150,000  net.  Would 
you  comply  with  this  request?  Give  reasons. 


222. 

Dartmouth  Manufacturing  Corporation. 

General  Balance  Sheet,  October  i. 
Assets  1907 

Real     Estate $   458,709 

Machinery 616,675 

New    Construction 

Merchandise 393,57° 

Cash  &  Debts  Receiv 653,681 


1908 

1909 

$  473,553 

$  466,614 

644,468 

726,397 

644,184 

634,735 

669,953 

548,013 

706,227 

Totals $2,122,635    $2,300,769    $3,213,375 


PROBLEMS  IN  ACCOUNTING 


91 


Liabilities  1907 

Common    Stock $  600,000 

Preferred    Stock 

Funded  Debt 450,000 

Bills   Payable 

Accounts     Payable 20,529 

Reserve  for  Bonds 150,000 

Reserve  for  Depreciation 100,000 

Profit  and  Loss 802,106 


1908 
$    600,000 

450,000 

24,505 
175,000 
175,000 
876,264 


1909 

$1,200,000 

337^20 

800,000 

150,000 

61,940 

200,000 
175,000 
288,615 


Totals $2,122,635    $2,300,769    $3,213,375 

(a)  What  were  the  profits  for  the  year  ending  Oct.  I,  1909. 
assuming  that  no  cash  dividends  have  been  paid  and  that  the  increase 
in  common  stock  outstanding  represents  a  stock  dividend. 

(b)  Where  did  they  get  the  money  to  make  the  extensions  added 
in  1908-09?     Why  didn't  they  use  the  surplus  to  make  these  ex- 
tensions ? 

223. 

The  Canavan  Mining  Company  is  organized  under  the  laws  of 
Arizona  to  buy  and  develop  certain  silver  mines  near  the  Mexican 
border.  The  Capital  Stock,  fully  paid  in  cash  at  par,  is  $500,000.00. 
At  the  end  of  the  third  year  of  operation  the  Company  has  the  fol- 
lowing assets : 

Mining  lands $496,712.18 

Buildings  and  Improvements 53,287.82 

Cash 33,244.20 

Machinery 31,000.00 

Merchandise  and   Supplies 8,614.38 

Bills  and  Accounts  Receivable 11,385.62 

Silver   Bullion 69,000.00 

The  Company  owes  $20,000  on  open  account  and  has  accrued 
liabilities  amounting  to  $2,244.20.  (a)  Set  up  the  balance  sheet  and 
determine  the  total  profits  for  the  three  years,  assuming  the  above 
to  be  the  values  of  the  assets  after  proper  allowances  have  been  made 
for  depreciation,  and  that  no  dividends  have  been  paid  the  first  year 
and  8%  in  each  of  the  other  two  years,  (b)  Answer  the  same  ques- 
tions as  in  (a)  on  the  assumption  that  the  values  given  above  rep- 


92  PROBLEMS  IN  ACCOUNTING 

resent  original  cost  and  that  a  reserve  for  depreciation  for  mining 
lands  amounting  to  $180,000  has  been  set  up,  and  another  for  de- 
preciation of  buildings,  improvements,  and  machinery  amounting  to 
$20,000 ;  and  that  no  dividends  have  been  paid. 


224. 

A  company  authorizes  its  officers  to  borrow  $100,000  for  its 
account  and  give  as  security  $200,000  of  the  first  mortgage  bonds 
of  the  company.  How  should  this  transaction  be  treated  on  the 
balance  sheet? 

225. 

Below  is  shown  the  liability  side  of  a  corporate  balance  sheet  for 
the  year  ending  Dec.  31,  1912.  There  are  also  shown  various  assumed 
balance  sheets  for  the  year  ending  Dec.  31,  1913.  Give  the  history  of 
the  business  during  the  year  191  £  as  shown  by  the  assumed  balance 
sheets  (a)  to  (g). 

Liabilities  Dec.  31,  1913 


Dec.  31, 
1912 


(a) 


(b) 


Capital  Stock  ......  $   800,000    $   800,000    $1,200,000 


Bonds  ............  500,000 

Bills   Payable  ......  960,000 

Accounts  Payable.  .  320,000 

Surplus    ..........  30,000 


750,000 

8(4O,OOO 

l60,000 

6O,OOO 


500,000 

6OO,OOO 

300,000 

IO,OOO 


(c) 

$  8OO,OOO 
500,000 


280,000 
7O,OOO 


Total    $2,610,000    $2,610,000    $2,610,000    $2,390,000 


Liabilities  1913 

(d)  (e)  '  (f) 

Capital     Stock $1,000,000  $1,000,000  $1,200,000 

Bonds    600,000  750,000  300,000 

Bills     Payable 960,000  800,000  600,000 

Accounts  Payable.  .      320,000  320,000  400,000 

Surplus    30,000  80,000 


(g) 

$1,000,000 

400,000 
760,000 
270,000 


Total    $2,910,000    $2,950,000    $2,500,000    $2,430,000 

*  A  deficit  of  $20,000  appears  on  the  asset  side  of  the  balance 
sheet. 


PROBLEMS  IN  ACCOUNTING  93 

226. 

The  following  is  a  comparative  balance  sheet  at  December  31,. 
1910,  and  December  31,  1911,  presented  to  the  directors  of  the  West- 
ern Company  at  their  meeting  of  January  5,  1912  : 

Assets                                          1910  1911 

Land $  20,000  $  25,000* 

Buildings 45,ooo  45,ooo 

Machinery  and  Tools 86,000  89,000 

Horse,  Wagon  and  Harness 10,500  10,500 

Patents 6,000  6,000 

Good-will    25,000  25,000 

Cash 28,300  10,300 

Accounts  Receivable 29,600  26,550 

Investments — Bonds   15,000 

Inventory  of  Goods  in  Process. .      10,800  14,690 

Inventory  of  Materials  and  Sup.       6,750  10,300 

Agency  Investment 3,68o 

$267,950  $281,020 
Liabilities 

Capital  Stock: 

Preferred $150,000  $150,000 

Common    50,000  50,000 

Bond  and  Mortgage  Payable. . .  20,000 

Notes  Payable 35,ooo  2,000 

Accounts  Payable 16,400  I9>3S° 

Reserves  for  Depreciation 2,500  6,750 

Prerhium  on  Bonds 1,000 

Surplus    14,050  31,920 


$267,950         $281,020 

*Increase  due  to  appraisal  based  on  rise  in  values  of  factory  sites 
in  the  immediate  vicinity. 

Together  with  the  above  balance  sheet  there  was  submitted  to  the 
Board  of  Directors  a  statement  of  income  and  profit  and  loss  show- 
ing the  profits  of  the  year  1911  to  have  been  $22,120.  The  directors 
state  to  the  auditors  that,  in  view  of  the  decrease  of  cash  and  of  the 
increase  of  capital  liabilities,  they  are  unable  to  ascertain  what  has 
become  of  the  increased  profits  of  the  year.  The  auditor  prepares 
and  submits  to  the  directors,  before  the  meeting  is  adjourned,  an 


-94  PROBLEMS  IN  ACCOUNTING 

account  properly  named,  which  is  so  arranged  as  to  show  clearly  how 
the  Western  Company  has  applied  such  resources  of  the  year  1910  as 
have  been  lost  in  1911,  and  the  resources  and  profits  of  the  year  1911. 
Prepare  the  account  rendered  by  the  auditor. 

227. 

Condensed  General  Balance  Sheets  The  Chemical  Co., 

December  31. 

Assets  1907  1908  1909 

Manufacturing  Investment,  at 

c°st $14,320,656    $14,334,087    $14,491,886 

Investments  in  other  Corpor- 
ations       2,971,290        2,962,757        3,008,613 

Merchandise  on  hand,  at  Fac- 
tory cost 2,179,734         1,981,011         1,905,153 

Receivables  as  follows : 

Customers'  accounts 1,147,346         1,027,383         1,007,959 

Due     from     Corporations 

controlled    1,39^960         i,4O9,5J3         ^925^55 

Loans 40,992  37.S66  2,581 

Cash  572,866  679,946        2,063,290 

Reserved  Fund  for  Fire  In- 
surance (Cash  and  Securi- 
ties at  Market  Values) .  . .        329,902  389,206  436,512 
Miscellaneous   Assets 76,384             83,742  88,358 


Totals $23,031,130  $22,905,211     $24,930,007 

Lialibilities 

Preferred  Stock $11,000,000  $11,000,000    $12,500,000 

Common    Stock 7,410,300  7,410,300        7,410,300 

Accounts  payable  but  not  due       522,023  401,687           314,499 

Loans    450,000  350,000 

Profit  Sharing  Fund 109,346 

Funded  Reserve  for  Fire  In- 
surance   (Contra) 329,902  389,206           436,512 

Reserve  for  U.  S.  Corporation 

Tax    15,000 

Dividend  Payable  January. .  .        165,000  165,000            187,500 

Surplus    3>I53>905  3,189,018        3,956,850 


Totals $23,031,130    $22,905,211     $24,930,007 


PROBLEMS  IN-  ACCOUNTING 


95 


(a)  What  were  the  profits  for  the  years   1908  and  1909  as 
nearly  as  may  be  determined  from  the  above  balance  sheets,  assum- 
ing that  the  dividend  rate  is  il/2%  quarterly  on  preferred  stock.    No 
dividends  have  been  paid  on  common. 

(b)  Give  the  journal  entries  made  in  1909  affecting  the  accounts 
"Reserved  Fund  for  Fire  Insurance"  and  "Funded  Reserve  for  Fire 
Insurance." 

(c)  Is  the  "Profit  Sharing  Fund"  a  valuation  account,  a  surplus 
account,  or  a  liability  account  ? 

(d)  Give  a  history  of  the  business  as  shown  by  the  balance 
sheets  for  the  two  years. 

228. 

For  the  years  ending  December  31,  1913  and  1914,  the  balance 
sheets  of  The  Acme  Specialty  Company  are  as  follows : 

Assets  1913  1914 

Real  Estate  and  Plant $300,000.00  $280,000.00 

Machinery  and  Tools 100,000.00  90,000.00 

Raw  Materials  and  Goods 

in  Process 46,313.00  37,642.00 

Finished  Products 53,687.00  62,358.00 

Bills  and  Accounts  Receiv- 
able    71,600.00  60,084.00 

Sinking  Fund 28,400.00  33,916.00 

Depreciation   Fund 30,000.00 

Cash 5,049.66  14,128.87 

Totals $605,049.66        $608,128.87 

Liabilities 

Common    Stock $200,000.00  $200,000.00 

6%    Preferred   Stock 100,000.00  100,000.00 

$%  Bonds,  ist  Mortgage. .  100,000.00  100,000.00 

Bills  and  Accts.  Payable. .  84,011.44  78,128.72 

Accrued  Liabilities 3>°99-56  6,084.28 

Sinking  Fund 28,400.00  33,916.00 

Reserve  for  Bad  Debts 4,499.00  3,999-87 

Reserve  for  Depreciation. .  25,000.00  25,000.00 

Surplus    60,039.66  61,000.00 


Totals $605,049.66        $608,128.87 


96  PROBLEMS  IN  ACCOUNTING 

No  machinery  or  real  estate  has  been  sold  during  the  year. 

At  the  end  of  1914  the  company  paid  a  dividend  of  6%  on  the 
Preferred  Stock  and  3%  on  the  Common.  What  were  the  total  profits 
for  the  year?  How  was  depreciation  provided  for? 

229. 

A  company  owns  all  the  capital  stock  of  another  company.  This 
company  has  outstanding  an  issue  of  bonds  not  guaranteed  by  the 
company  holding  the  stock.  The  assets  of  this  subsidiary  company 
are  deemed  insufficient  to  cover  the  bonds,  so  that  the  capital  stock 
has  no  value.  The  owning  company  desires  the  auditor  to  pre- 
pare its  balance  sheet,  setting  up  the  assets  of  this  subsidiary  com- 
pany along  with  other  assets  directly  owned  and  the  bonds  as  liabil- 
ities. Is  it  proper  for  him  to  do  so  under  the  circumstances  ?  Give 
reasons  for  your  answer. 

230. 

r^-w     . 

Comparative  General  Balance  Sheet  and  Income  Accounts  of 
General  Railway  Signal  Company,  December  31. 

Assets  1908  1909 

Patents,  including  Youngs'  system $3,269,350  $3,332,089 

Factory  bldg.,  land  and  improvements 717,828  729.349 

Machinery,  tools  and  fixtures 635,731  655,794 

Material  in  stock 902,236  893,595 

Bonds  owned  (Century  Tel.  Con.  Co.) &5,55°  85,550 

Cash    60,541  54,267 

Bills  and  accts.  receivable 262,115  325,315 

Deposit    6,923 

Bond  discount  and  tax 53,664  51,048 

Prepaid  items 7,982  4,937 

Deficit    6,088 


Totals $5.994,997  $6,144,955 

Liabilities 

Common  stock $3,000,000  $3,000,000 

Preferred  stock 2,000,000  2,000,000 

Funded  debt, 

Pneumatic  Signal  Co.,  bonds 110,000  88,000 

General  Railway  Signal  Co.,  bonds 515,000  529,000 

Bills  and  accts.  payable 350,169  526,195 


PROBLEMS  IN  ACCOUNTING 


Accrued  interest  on  bonds 
Surplus    


17,610 
2,218 


97 
1,760 


Totals '.$5,994,997    $6,144,955 

Gross  Net  Interest 

Profit      Expenses  Earnings       (paid)     Balance    Deprec'n     Balance 

1906  $510,427    $230,286    $260,141  $  38,063    $242,078 

1907  453,073      240,200      212,873:        52,113      160,760      156,898*        3,862 


1908 
1909 


260,663   213,319 
233,434   182,869 


47,344   47,333 
50,565   43,818 


II 
6,747 


15,054 


I9,io2def. 
8,307  def . 


*  Made  up  as  follows :  depreciation,  $50,345 ;  reserve  account, 
$15,000,  and  moving  and  extraordinary  expenses,  $89,465 — total, 
$156,898. 

(a)  Give  the  history  of  the  business  for  the  year  1909. 

(b)  The  preferred  stock  is  entitled  to  6%  cumulative  dividends. 
In  case  of  dissolution,  the  preferred  stockholders  get  the  amount 
of  their  stock  and  unpaid  dividends  before  payment  can  be  made 
on  common  stock.    Dividends  have  accumulated  to  iol/2%.    Assum- 
ing that  the  patents  are  worth  So%  of  the  stated  figure,  how  much 
would  the  common  stock  holders  receive  in  case  of  dissolution  ? 

231. 

Criticize  the  following  balance  sheet  from  both  the  auditor's 
standpoint  and  that  of  the  company's  financial  position.  Assume 
that  the  bond  indebtedness  outstanding  is  $200,000. 

ASSETS. 

Real  Estate,  Buildings,  Plants,  Machinery,  Equipment,  and  other  per- 
manent Investment,  including  Good  Will $1,000,000 

Investment  in  Stocks  and  Bonds  at  Cost  (Market  Value,  $60,000)  . . .      100,000 

Current  Assets 

Raw    Materials $  170,000 

Finished  Stock  at  Selling  Prices,  less  S%  Discount  100,000 

Consignments    (Selling  Value) 50,000 

Supplies    (Estimated) 200,000 

Accts.  and  Bills  Rec.  including  advances  to  employees  125,000 
Stocks  in  Treasury  (Unissued) 

Preferred    150,000 

Common    137,225 

Investments  in  Subsidiary  Companies 225,500 

Cash  and  Miscellaneous  Items 50,500    $1,208,225 


$2,308,225 


98 


PROBLEMS  IN  ACCOUNTING 


Capital  Stock:  LIABILITIES. 

Preferred    500,000 

Common 750,000 

Bonds  and  Bankers'  Loans 575,ooo 

Current  Liabilities : 

'Accounts  Payable $  15,225 

Other  Indebtedness 231,000 

Accrued    Items 2,000 

Reserves :  248,225 

For    Depreciation $  50,000 

Less  Renewal  Expenditures,  written  off 65,000 

Balance    (Debit) 15,000 

For  Bad  Debts 20,000 

Other  Contingencies 5,ooo 

10,000 

Surplus  (less  Dividends  Paid)  including\  appreciation  in  Real  Es- 
tate 'and  other  Capital  Assets  and  Profit  on  Inventorying  Raw 
(Materials  at  Market  Prices 225,000 

232. 

The  following  is  a  comparative  Balance  Sheet  of  the  Arban  Seed 
and  Oil  Co.  for  the  dates  given. 

ASSETS. 

Current  Assets:                                                           Jan.  i,  1913  Jan.  i,  1912 

Cash    $  33,450.74  $     27,830.81 

Bill's  Receivable 1,499.11  1,221.10 

Accounts   Receivable    139,222.73  108,437.79 

Merchandise  on  'hand  and  in  process 458,890.79  561,726.14 

Thomas  Jones   7,264.09  9,370.79 

Railroad  Claims    8,878.68  7,241.42 

Car.  M'ileage 91.09  1.94 

Plant  Assets : 

Land    15,513-52  15,513-52 

Buildings  and  Plant 107,033.43  101,652.30 

Machinery  and  Equipment   249,603.68  232,673.85 

New  Process   27,480.33  26,140.00 

Pumping  and   Station  Equipment 12,498.90  12,498.90 

Tank   Cars    30,739-59  3»,739-59 

Furniture  and  Fixtures 11,317.06  10,274.80 

Tools 8,934.76  7,983-24 


99 


PROBLEMS  IN  ACCOUNTING 

Deferred  Charges  to  operation;  Interest  on  Bills 

Payable  prepaid   123.00 

Insurance  Prepaid 4,673.00 

Profit  and  Loss   188,000.00  169,000.00 

Total   $1,305,214.50        $1,323,718.49 

LIABILITIES. 

Common  Stock  $  350,000.00        $   350,000.00 

Preferred  Stock 350,000.00  350,000.00 

Bills   Payable   590,000.00  600,000.00 

Accounts    Payable    8,186.60  17,278.79 

Accrued  Interest   723.40  634.00 

Accrued  Wages 2,724.50  2,845.70 

Accrued  Taxes 3,580.00  2,960.00 


Total   $1,305,214.50        $1,323,718.49 

In  addition  to  the  information  conveyed  by  the  above  statement, 
you  have  the  following  facts.  First,  the  item  of  Accts.  Receivable 
contains  an  overdue  account  for  $50,000.00  of  the  Ebenezer  Manfg. 
Co.  This  account  is  now  in  litigation  and  there  is  no  liklihood  that 
the  Arban  Oil  and  Seed  Co.  will  realize  anything  on  it.  Second, 
the  plant  has  been  running  six  years,  during  which  time  no  depre- 
ciation has  been  charged  on  plant,  equipment,  or  machinery,  some 
machinery,  together  with  its  foundations,  has  been  wrecked  and 
replaced  by  new  machinery  on  newly  constructed  foundations  with- 
out any  credits  to  plant  and  machinery.  Third,  the  company  paid, 
in  1912,  a  six  per  cent  dividend  on  the  preferred  stock.  Fourth,  the 
profits  for  the  current  year  will  not  be  any  larger  than  they  were  in 
1912.  Fifth,  the  asset  item  "Thos.  Jones"  represents  an  overdraft 
by  him  while  an  officer  of  the  corporation,  and  is  not  collectible. 

(a)  A  man  who  owns  $150,000  preferred  and  $150,000  common 
stock  of  this  corporation  dies  with  liabilities  amounting  to  $220,000. 
His   executor   presents   the   above   statements,   together   with   the 
additional  information,  to  you  and  asks  you  whether  or  not  the 
estate  is  insolvent.    Give  him  your  answer  supported  by  the  analysis 
of  the  corporation's  affairs  on  which  that  answer  is  based. 

(b)  What  were  the  profits  for  the  year? 

(c)  Make  a  comparative  statement  showing  where  the  money 
used  to  pay  dividends  was  obtained. 


100 


PROBLEMS  IN  ACCOUNTING 


233. 

Harbison- Walker  Refractories  Co.  Comparative  General  Balance 
Sheet,  September  30. 

Assets  1908  1909 

Property  Account $28,755,434  $28,716,152 

Betterments  completed 1,118,409  1,136,196 

Betterments  uncompleted 76,299  237,809 

*Def erred  Charges 310,907  288,787 

Inventories  at  cost 1,335,862  1,578,317 

Accounts  Receivable 891,775  1,227,864 

Bills  Receivable 36,018  33,009 

Cash     703,822  566,526 

Investment  Securities: 

Investment  of  Reserves 182,000  182,000 

Co.'s  bonds  purchased,  held  in  T^eas..  312,000  267,000 

Other   Securities 61,559  247,390 

Totals    $33»784»o85  $34481,050 

Liabilities 

Common  Stock $18,000,000  $18,000,000 

Preferred    Stock 9,600,000  9,600,000 

Bonds  (Total  issue  $3,500,000  purchased 
cancelled  as  per  sinking  fund  require- 
ments)    2,440,000  2,205,000 

Bond  interest  and  taxes  not  due 44,446  50,897 

Reserve  to  cover  premium  at  redemption 

of  bonds 13,020  9,I3I 

Clay  and  Coal  Depletion  Fund 111,529  125,706 

Accounts   Payable 123,442  362,608 

Pay   Rolls 45,523  62,099 

Sundry  Reserves 236,163  213,620 

Surplus    3,169,962  3.851,989 


Total    $33,784,085        $34,481,050 

*  Including  clay  and  coal  outfits  (1909,  $217,986),  advanced 
royalties,  stripping,  prospecting,  uncompleted  extraordinary  repairs, 
etc. 


PROBLEMS  IN  ACCOUNTING  101 

(a)  State  the  facts  exhibited  by  the  above  balance  sheet  for 
1909  in  narrative  form,  showing  the  net  proprietorship  and  earnings 
for  the  year  Sept.  30,  1908,  to  Sept.  30,  1909,  as  far  as  these  can  be 
determined  from  the  balance  sheet ;  and  discuss  their  accounting 
practices. 

(b)  What  was  the  sinking  fund  installment  for  the  year? 

234- 

In  the  preparation  of  a  manufacturing  and  trading  account  and 
a  balance  sheet,  state  on  what  basis  the  following  assets  should 
be  valued:  (i)  raw  materials,  (2)  product  in  process  of  manufacture, 
(3)  manufactured  product,  (4)  bills  receivable,  and  (5)  accounts 
receivable.  Give  fully  your  reasons. 

235- 

The  following  figures  are  shown  on  a  balance  sheet  for  January 
i,  1912. 

Real  Estate $100,000  Capital  stock $400,000 

Machinery   500,000  Funded  Debt 200,000 

Merchandise 150,000  Bills  Payable 50,000 

Accounts  Receivable. . .     50,000  Accounts  Payable 75,ooo 

Cash   50,000  Surplus 125,000 


$850,000  $850,000 

The  following  is  the  income  sheet  for  the  year  1911 : — 

Sales  $1,000,000 

Goods  in  process,  Jan.  i,  1912. .  .  30,000 
Stores  on  hand,  Jan.  i,  1912. . .  .  20,000 
Merchandise,  Jan.  I,  1912 100,000 


$1,150,000 
Less  selling  costs 250,000    $900,000 


Goods  in  process,  Jan.  i,  1911. .  .$  20,000 

Stores  on  hand,  Jan.  i,  1911 15,000 

Merchandise  on  hand,  Jan.  I,  1911  80,000 

Supplies  purchased 175,000 

Wages  paid 320,000 


102  PROBLEMS  IN  ACCOUNTING 

Wages  due  and  unpaid 30,000 

General  manufacturing  expenses     200,000 

Cost  of  product $840,000 


Net  profit $  60,000 

Dividends  declared,  but  not  yet  paid 32,000 


Surplus  for  the  year $  28,000 

Is  the  balance  sheet  consistent  with  the  income  sheet?  If  not, 
assume  the  ledger  and  the  totals  of  both  sides  of  the  balance  sheet  to 
be  correct,  and  any  error  to  have  been  caused  by  unwarranted  com- 
binations or  cancellations  of  accounts,  and  then  correct  the  balance 
sheet. 

Show  the  trial  balance  as  it  stood  before  the  books  were  closed  for 
December  31. 

236. 

The  balance  sheet,  on  January  I,  1911,  of  the  corporation  whose 
balance  sheet  for  January  i,  1912,  was  given  in  Problem  235,  was  as 
follows : — 

Real  Estate. $100,000    Capital  Stock $400,000 

Machinery   500,000     Funded  Debt 200,000 

Goods  in  Process 20,000     Bills  Payable 40,000 

Finished   Goods 80,000  *  Accounts  Payable 60,000 

Stores 15,000     Surplus 97,000 

Accounts  Receivable. . .     75,000     Dividends 28,000 

Cash  35.000 


$825,000  $825,000 

What  more  can  you  now  tell  about  the  business  for  the  year  1911 
than  you  could  tell  from  the  figures  given  in  Question  235. 


PROBLEMS  IN  ACCOUNTING 


103 


237- 


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JIIIJ 


In  1907  there  was  written  off  against  surplus  for  reduction  in  value  o! 
pine  lands  and  stumpage  $703,497.  For  reduction  in  patents,  rights,  trade 
marks,  etc.,  $917,371. 

(a)  On  the  basis  of  the  figures  presented  above  explain  the  changes 
in  surplus  for  each  year. 

(b)  What  was  the  surplus  appearing  on  the  balance   sheet   for  Dec. 
31,   1906? 

(c)  Give  a  history  of  the  business  for  the  years  1907  to  1911,  as  shown 
by  the  figures  presented. 


104    '  PROBLEMS  IN  ACCOUNTING 

238. 

The  Holmes  Realty  Company  was  organized  January  I,  1913,  to 
own  and  sell  suburban  lots,  and  is  operated  by  a  manager  under  an 
agreement  of  which  the  following  is  a  digest : 

"The  company  is  to  furnish  and  maintain  offices  at  New 
York  and  at  the  site  of  the  company's  property  in  the 
suburbs  of  Philadelphia,  and  also  to  pay  salaries  of 
clerks  and  salesmen.  The  manager  is  to  receive  5% 
commission  on  the  sales. 

"The  property  is  to  be  reappraised  at  the  beginning  of 
each  year  by  adding  to  the  account  4%  on  the  book  fig- 
ure of  the  property  unsold  at  the  beginning  of  the  pre- 
ceding year,  and  by  adding  the  amount  of  any  losses 
which  may  have  occurred  in  the  preceding  year,  such 
additions  for  losses  to  be  canceled  in  subsequent  years 
if  they  are  made  up  by  profits.  The  figures  so  added 
shall  be  pro-rated  over  the  remaining  lots  for  sale,  and 
the  manager  is  bound  not  to  sell  any  property  at  less 
than  the  book  figure." 

The  books  have  been  kept  for  two  years  without  adjusting  and 
closing  entries,  and  the  accounts  show  the  following  figures  at 
December  31,  1915: 

Property   account    (original   purchases   of 

1000  lots  of  equal  value) $400,000.00 

Capital   stock 400,000.00 

New  York  office  expense 3,085.00 

Philadelphia  office  expense 5,178.32 

Salesmen's  salaries 17,500.00 

Sales  220  lots  for 1 1 1,425.00 

Deposits  on  account  of  sales  not  yet  closed         215.00 

Mortgages  held  on  property  sold 38,000.00 

Cash 49,096.43 

Creditors'  accounts  (for  office  supplies)  . . .          643.75 
Interest  on  mortgages  received 576.00 

There  is  also  an  amount  of  $125  interest  due  and  not  yet  received 
and  $235  accrued  interest  on  mortgages  at  Dec.  31,  1907. 

These  figures  for  expenses  and  sales  appear  up  to  Dec.  31,  1906: 

New  York  office  expense $  1,435.00 

Salaries  of  salesmen 8,500.00 


PROBLEMS  IN  ACCOUNTING  105 

Philadelphia  office  expense 2,647.82 

Sales  60  lots  for 29,000.00 

Prepare  a  detailed  exhibit  of  operations,  also  balance  sheet  as  at 
the  beginning  of  the  third  year  with  exhibit  of  the  Property  Account. 

239- 

The  bookkeeper  of  a  manufacturing  concern  could  produce  only 
the  following  statement  from  its  records  on  January  i,  1907: 

Manufacturing  expense $  4,622.89 

Capital  Stock 10,000.00 

Plant  and  equipment 17,500.00 

Cash 832.14 

Gross  sales 8,469.10 

First  Mortgage  Bonds  (due  12/31/07) 15,000.00 

Materials  and  supplies  (inventory) 4,289.34 

Notes  payable 5,000.00 

Accounts  payable 5,423.23 

Interest  on  bonds  (7  mos.) 393-75 

Interest  on  notes  and  accounts  payable 282.40 

On  January  I,  1907,  the  management  is  changed  and  you  are  later 
retained  as  a  public  accountant  to  conduct  an  examination  and  pre- 
pare a  balance  sheet  as  of  January  I,  1908. 

You  find  that  during  the  preceding  year  the  directors  have  sub- 
scribed in  cash  to  $7,500  additional  capital  stock  and  have  retired  all 
the  notes  and  accounts  payable  and  that  no  interest  was  paid  on  these 
accounts  for  the  year.  You  also  find  that  the  plant  and  equipment 
was  revalued  at  $15,000  and  5%  of  this  amount  was  charged  off  to 
provide  for  depreciation,  while  an  additional  2^/2%  was  ordered 
placed  in  Reserve  Account  to  cover  repairs  and  renewals,  the  entire 
7/^%  being  charged  directly  to  Profit  and  Loss.  The  bonds  out- 
standing fell  due  on  December  31,  1907,  and  were  paid,  principal  and 
interest,  in  cash. 

An  inventory  of  materials  and  supplies  places  their  value  at 
$2,328.19,  the  practice  being  to  charge  all  purchases  directly  to  Manu- 
facturing expense  and  to  credit  back  the  amount  of  the  inventory. 

The  accounts  payable  (all  for  material  and  non-interest  bearing) 
amount  to  $546.28. 

Of  the  accounts  receivable,  January  I,  1907,  $4,968.18  was  col- 
lected and  the  balance  charged  off  as  uncollectible. 


106  PROBLEMS  IN  ACCOUNTING 

In  addition  to  the  material  used  from  stock  during  the  year,  and 
the  amount  still  due  for  material  purchased,  the  manufacturing  ex- 
penses were  $3,720.52,  all  paid  in  cash,  the  total  manufacturing 
expenses  being  31%  of  the  gross  sales  for  the  year  ending  January  i, 
1908.  Of  these  91.3%  was  collected  in  cash  and  the  balance,  all  of 
which  is  considered  good,  remains  on  the  books  in  accounts  receiv- 
able. 

Produce  a  comparative  balance  sheet  of  January  i,  1907-08,  and 
state  the  amount  of  gross  sales  for  the  year. 

240. 

At  the  close  of  the  year  1907  the  books  of  a  manufacturing  com- 
pany show  a  credit  balance  in  the  profit  and  loss  account  of  $20,000, 
and  a  merchandise  account,  based  on  appraisement  of  inventory  at 
selling  prices  of  $36,000,  but  an  appraisement  of  the  same  inventory 
at  cost  prices  would  amount  to  $27,000. 

The  trading,  income,  and  profi^and  loss  accounts  for  the  year 
1908  show  the  following  balancesT^ 

Sales   $100,000 

Discount  on  sales 1,500 

Returns  and  allowances 500 

Purchases 75,ooo 

Freight  on  purchases 3,ooo 

Discount  on  purchases 600 

Shipping  expenses 2,000 

Selling  expenses 5,ooo 

Office  and  general  expenses 10,000 

Insurance  300 

Taxes    200 

Depreciation  of  machinery,  fittings  and  fur- 
niture   1,000 

Accounts  written  off  as  uncollectible 300 

Interest  on  notes  and  accounts  receivable 1,900 

Interest  on  notes  and  accounts  payable 700 

At  the  end  of  the  year  1908  the  books  were  closed  on  the  basis  of 
an  inventory,  appraised  at  selling  prices,  amounting  to  $40,000.  If 
this  inventory  had  been  appraised  at  cost  prices  it  would  have 
amounted  to  $30,000. 

Prepare  from  these  items  one  statement  showing  the  correct  trad- 
ing and  income  results  for  the  year,  and  another  statement  of  Profit 
and  Loss  Account  opened  with  the  credit  balance  shown  by  the  books 
at  the  beginning  of  the  year. 


PROBLEMS  IN  ACCOUNTING 


241 


107 


On  Dec.  3!  1912,  the  trial  balance  of  the  M  company  was  as 
follows  : 


Real  Estate  $ 

300,000.00 

Discount  earned.  .  .$ 

10,120.5* 

Buildings   

i  58,000.00 

Accounts  payable.  . 

75,871.38 

Equipment     .... 

847.500.00 

Depreciation       Re- 

Goodwill 

50  oou  oo 

serve  

58,272.00 

Cash   

46,474.20 

Common  stock  .... 

i  ,000,000.00 

Discount  Allowed.  . 
[nterest  General.  .  . 

5,600.14 

3.  3OO.2O 

Preferred  stock  .... 
Sales  

500,000.00 
1,371,401.17 

Insurance    paid    in 
advance  on  plant 

O'O 
3  O3O  80 

Taxes  accrued  (est) 
Bills  Payable   

5,300.00 
35,000.00 

Accounts  Receivable 
Inventory    of    raw 

156,028.75 

Accrued  interest  on 
bills  payable  

QOO.I2 

material  and  work 
in  progress  Dec. 

31     IQII 

l84  ^67  3Q 

First  Mortgage 
bonds   (4%)  
Surplus                .  .  . 

100,000.00 

Operating,    mainte- 
nance,   manufac- 
turing  and    gen- 
eral expenses  .... 
Depreciation    
Purchases  

•  *  \)   ~   /      \J  */ 

709,988.65 
25,000.00 
6Q  I  O8^  47 

Bond  interest  (one- 
half  year  to  June 
30.  1012")  .  , 

2  OOO  OO 

Total  .               .  .to 

!.  1  83.47S.60 

Total  .               .  .$ 

3,183,475.60 

The  inventory  of  raw  materials  and  work  in  progress  on  Dec.  31, 
1912,  is  valued  at  $309,062.05.  Before  the  books  are  finally  closed  it 
is  determined  to  (i)  make  a  reserve  of  one-half  of  one  per  cent  on 
$140,000  of  the  accounts  receivable  to  provide  for  possible  bad  and 
doubtful  accounts;  (2)  add  $1,000  to  the  taxes  accrued  (estimated) 
account;  (3)  carry  to  depreciation  reserve  account  a  further  sum  of 
$5,000.  Interest  on  bonds  to  Dec.  3ist  is  also  to  be  provided  for. 

It  is  found  that  bona  fide  renewals  of  equipment,  costing  $17,500, 
have  been  charged  to  operating  expenses ;  that  repairs  to  equipment, 
amounting  to  $6,000,  have  been  charged  to  equipment  account ;  that 
$1,500,  proceeds  of  old  machinery  sold,  have  been  credited  to  the 
sales  account;  and  that  a  bill  of  $1,560.25  for  raw  material  received 
and  used,  has  not  been  entered  on  the  books.  These  items  are  to  be 


io8  PROBLEMS  IN  ACCOUNTING 

taken  into  account  before  the  books  are  closed.  Three  per  cent  of 
the  net  profits  for  the  year  is  then  to  be  reserved  for  special  compen- 
sation to  the  management. 

Make  journal  entries  to  give  effect  to  the  various  adjustments 
above  described  and  to  close  the  books,  creating  (i)  a  combined 
Manufacturing  and  Trading  Account,  (2)  a  Profit  and  Loss  Account 
and  (3)  a  Balance  Sheet. 

242. 

What  are  secret  reserves  ?  Show  at  least  two  instances,  illustrat- 
ing the  reasons  for  their  creation  and  the  methods  of  establishing 
them. 

243- 

(1)  A  corporation  has  set  aside  out  of  profits  $250,000  and  has 
invested  the  same  in  government  securities  at  par.    Will  this  affect 
the  Assets  side,  or  the  Liabilities  side  of  the  balance  sheet,  or  both  ? 
Make  up  a  simple  balance  sheet  after  these  profits  have  been  so 
invested. 

(2)  How  should  the  fund  and  investment  appear  on  the  bal- 
ance sheet  if  the  value  of  the  securities  should  rise? 

(3)  If  the  securities  should  fall  in  price? 

244. 
ASSETS 

Real   Estate $  2,347,816 

Plant  and  Machinery 7,500,000 

Inventory 4,869,509 

Notes  Receivable 1,000,000 

Accounts  Receivable 935>3°4 

Bond  Discount I39>796 

Sinking  Fund 1,700,000 

(Redeemed  Bonds  6%  Convert.) 

Cash 1,465,625 

Profit  and  Loss 779,9^ 


$20,737,968 
LIABILITIES. 

Capital     Stock $10,000,000 

6%  Convertible  Debentures 2,000,000 

5%  Income  Bonds 1,500,000 

Mortgage  to  secure  purchase  price  of  Real 
Estate i  ,077»°97 


PROBLEMS  IN  ACCOUNTING 

Notes  and  Accounts  Payable 340,30x3 

Interest  and  Taxes  Accrued 107,336 

Sinking  Fund  Reserve 1,700,000 

Reserve  for  Accrued  Depreciation  on  Plant 

and  Machinery 2,800,000 

Reserves  for  Additions  to  Plant 1,213,235 


$20,737,968 

(a)  Rearrange  the  above  Balance   Sheet  in  more  intelligible 
form. 

(b)  State  the  facts  exhibited  by  the  above  Balance  Sheet  in 
narrative  form. 

(c)  What  is  the  net  proprietorship  ? 

(d)  Assume  that  after  three  years  the  6%  Convertible  Deben- 
ture Bonds  are  all   redeemed  with   Sinking  Fund  accruals.     The 
Reserve  for  Accrued  Depreciation  to  Plant  has  been  increased  to 
$1,500,000,  and  the  Profit  and  Loss  item  on  the  asset  side  is  $600,000. 
The  Capital  Stock  remains  at  $10,000,000.    What  will  the  proprietor- 
ship be  at  that  time  ? 

(e)  What  entries  would  you  make  to  simplify  the  Balance  Sheet 
at  that  time? 

(f)  Assume  that  the  proposed  additions  to  plant  are  made  and 
cost  $1,300,000  in  cash.    What  is  the  proprietorship? 

(g)  What  entries  would  you  make  now  to  simplify  Balance 
Sheet? 

245. 

Assets  Liabilities 

Land  and  Buildings. . .  .$500,000     Capital   Stock $300,000 

Machinery  &  Tools 150,000     Bonds  500,000 

Raw  Materials 43,6oo     Bills  and  Accts.  Pay 60,000 

Goods  in  Process 50,700     Accrued  Items 12,000 

Finished  Product 25,700     Surplus 18,000 

Bills  &  Accts.  Rec 85,000 

Furniture  &  Fixtures.  .  5,000 

Investments 18,000 

Cash   12,000 


$890,000  $890,000 

(a)  Assuming  that  the  figures  on  the  above  balance  sheet  rep- 
resent actual  market  values,  how  much  would  the  stockholders  re- 
ceive in  case  of  dissolution? 


no 


PROBLEMS  IN  ACCOUNTING 


(b)  Assume  that  the  above  balance  sheet  represents  the  true 
condition  of  a  corporation  on  January  i,  1895 ;  that  the  bonds,  which 
have  just  been  issued,  are  2o-year  5%  First  Mortgage  Bonds ;  that 
the  company  has  agreed  to  set  aside  in  a  Sinking  Fund,  out  of  profits, 
a  sum  which  will  be  sufficient  to  retire  the  bonds  at  maturity;  that 
the  company  has  faithfully  carried  out  this  agreement  and  on  January 
i,  1915,  the  funds  which  it  has  set  aside  are  sufficient  to  retire  the 
bonds.    You  are  required  to  reconstruct  the  above  balance  sheet  as 
of  January  i,  1915,  (i)  before  the  bonds  are  actually  retired,  and 
(2)  after  retirement. 

(c)  What  journal  entries  are  required  each  year  for  the  setting 
aside  of  the  sum  agreed  upon? 

246. 
General  Balance  Sheet,  X.  Y.  Z.  Co.,  December  31. 

ASjSet&rx                   1911  1910 

Plant,  machinery,  patents,  goodwill,  etc $  6,978,288  $  6,922,185 

Securities  owned * 1,121,670  1,121,670 

Treasury  securities 237,000  237,000 

Cash 92,385  241,966 

Accts.  and  Bills  Rec 1,143,211  1,116,893 

Sinking  fund  assets 182,906  200,787 

Inventories    1,405,138  1,109,835 

$11,160,598    $10,950,336 

Liabilities. 

Capital   stock $  6,485,800    $  6,485,800 

Bonded  debt 2,000,000  2,100,000 

Interest  on  bonds 122,213  122,388 

Accounts  and  bills  payable 196,740  119,717 

Reserve  for  taxes,  etc 9,002  12,495 

Sinking  fund 682,906  600,787 

Surplus    1,663,937  i,509,H9 


$11,160,598    $10,950,336 

(a)  What  is  the  origin  of  the  sinking  fund  of  $682,906  appear- 
ing on  the  liability  side? 

(b)  How  has  the  sinking  fund  been  invested? 

(c)  In  1911  the  corporation  paid  a  dividend  of  4%.  What  were 
the  profits  for  the  year? 


PROBLEMS  IN  ACCOUNTING 


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PROBLEMS  IN  ACCOUNTING 


248. 

In  the  case  of  a  company  which  has  issued  cumulative  preferred 
stock,  but  has  not  earned  enough  to  pay  such  dividends  in  full  for 
several  years,  how  would  you  deal  with  the  arrears  of  dividends  due,. 
if  at  all,  on  the  company's  balance  sheet  ?  Give  reasons. 

249. 

The  Metropolitan  Investment  &  Brokerage  Company  declares  a 
dividend  of  5%.  On  going  over  their  records  it  is  found  that  the 
directors  have  written  up  the  value  of  some  of  the  securities  owned, 
which  they  contend  is  in  harmony  with  current  market  values.  The 
accounts  show  that  the  dividend  proposed  to  be  paid  has  not  been 
earned  unless  the  increment  in  value  referred  to  is  included  as  a 
profit.  What  is  your  view  of  the  action  of  the  directors  ?  State  your 
reasons  fully. 

250.  Debits         Credits 


Land  and  Buildings  .....  f^y-V  •  •$ 

Furniture  and  Fixtures  .......  I  .  .     20,000 

Merchandise  1/1/13  .............      12,000 

Advertising  ....................       5,ooo 

Sales  ..........................  $  95,000 

Proprietor  —  A.  D.  Lydic  .........  80,034 

Delivery  Equipment  .............        1,200 

Rent  ..........................        1,500  60 

Salaries  accrued  ....  .............  50 

Bad  Debts  ......................       3»5°o 

Cash  ..........................     25,162 

Notes  Payable  ..................  5,ooo 

Salaries    .......................       2,500 

Accrued  Interest  on  Notes  Rec  ....          275 

Commissions  ...................       7,000 

Purchase  allowances  .............  240 

Interest  Accrued  on  Notes  Payable  275 

Interest  on  Notes  Receivable  .....  275 

Commission  accrued  .............  400 

Accounts  Payable  ...............  12,473 

Purchase  Returns  ...............  180 

Interest  on  Notes  Payable  ........          350 

Accounts  Receivable  .............     35>7°o 

Sales  allowances  ................          750 

Prepaid  Rent  ...................          250 

Sales  returns  ...................          200 

Notes  Receivable  ................     10,000 

Insurance  ......................          300 


PROBLEMS  IN  ACCOUNTING  113 

Purchases    60,000 

Office  Expense 1,800 

Reserve  for  Bad  Debts 3>5oo 


$197,487    $197487 

Merchandise  Inventory,  12/31/14,  $16,000.  Estimated  value  of 
goodwill,  $5,000.  Unexpired  insurance,  $38. 

(a)  Prepare  a  six-column  statement. 

(b)  Mr.  Lydic  enters  into  a  partnership  agreement  with  J.  P. 
Thomas  whereby  the  latter  agrees  to  purchase  a  half-interest  m  the 
business  for  $63,000.    Frame  the  journal  entries  to  close  the  books 
of  A.  D.  Lydic  and  to  open  the  books  of  the  new  firm,  Lydic  & 
Thomas. 

251- 

A  corporation  is  organized  with  an  authorized  capital  stock  of 
$100,000,  of  which  $50,000  is  paid  in  cash  immediately.  Subscrip- 
tions are  received  for  an  additional  $25,000  payable  in  four  install- 
ments at  semi-annual  intervals,  at  no. 

Six  per  cent  bonds  for  a  par  value  of  $50,000  are  issued  at  90. 

For  the  first  year  the  income  sheet  is  as  follows: 

Gross  profits  on  merchandise  ................  $40,000 

Operating  expenses  ........................   20,000 

Net  earnings  ..............................  $20,000 

Bond   interest  ..................  ...........     3,ooo 

Net  income  ...............................  $17,000 

Dividends  ..............................  ..    i 


Surplus  for  the  year  .......................  $  2,000 

The  balance  sheet  is  as  follows  : 

Stock  Subscriptions  ----  $  13,750     Capital  stock  ..........  $  50,000 

Unissued     unsubscribed  Capital  stock  subscribed, 

stock  ..............     25,000         unissued  ...........  25,000 

Bond  Discount  ........       5,ooo    Capital  stock  unsubscrib- 

Cash,  and  other  assets  ..   130,750        ed,  unissued  .........  25,000 

Bonds  ...............  50,000 

Accounts    Payable    and 

other  debts  ..........  20,000 

Premium    ............  2,500 

Surplus  from  operation  2,000 

$174,500  $174,500 


H4  PROBLEMS  IN  ACCOUNTING 

Aside  from  brevity  (or  combination  of  unlike  assets  and  debts) 
are  the  income  sheet  and  the  balance  sheet  satisfactory? 
Interpret  the  items. 

252. 

A  corporation  charges  all  new  machinery  purchased  to  "New 
Machinery"  account.  This  is  merely  a  suspense  account.  At  the 
end  of  the  year,  a  portion  of  this  account,  equal  to  the  cost  of  old 
machinery  abandoned  during  the  year,  is  credited  out  and  charged 
to  operating  expenses,  as  Replacements.  The  remainder  is  credited 
out  and  charged  to  Machinery, — a  property  account. 

In  1913  the  company  issued  bonds  to  the  par  value  of  $1,000,- 
ooo,  which  sold  at  a  permium  of  12%.  The  following  entries  were 
made: 

Cash    $1,120,000 

To  Bonds _ $1,000,000 

To  New  Machinery ^^..  .\ 120,000 

What  is  the  effect  of  these  entries  on  the  balance  sheet  ? 

253- 

A  company  insures  the  life  of  its  manager  for  its  own  benefit  in 
the  ,sum  of  $50,000,  the  annual  premium  being  $1,250.  Explain  the 
method  you  would  adopt  of  treating  the  disbursement  at  the  annual 
accounting  during  the  period  the  policy  was  in  force. 

254- 

A  corporation  has  on  its  books  $210,000  of  accounts  receivable,  of 
which  $49,000  are  long  overdue  and  apparently  worthless.  The 
inventory  of  finished  goods,  taken  at  contract  price  less  5%,  amounts 
to  $124,000,  and  from  this  sum  has  been  deducted  $45,000  "to  pro- 
vide for  any  losses."  How  would  you  deal  with  this  state  of  affairs 
in  reporting  to  the  Bank  Commissioner  on  the  condition  of  the  cor- 
poration for  savings  bank  loans  ? 


MISCELLANEOUS 

255- 

F.  G.  Waite  and  H.  R.  Wilcox,  partners  sharing  equally  in  busi- 
ness, have  determined  to  change  their  system  of  bookkeeping  from 
purely  single  entry  to  double  entry,  continuing  the  use  of  the  old 
ledger.  The  following  statement  shows  the  footings  of  the  open  ac- 
counts in  their  ledger : 

Dr.  Cr. 

F.  G.  Waite  (Partner) $  250.25     $5,000.75 

H.  R.  Wilcox   (Partner) 1,360.00      6,000.00 

A.  M.  Sanderson ;  . .      320.00          150.25 

Martin  Chever 841.60         541.60 

Hendricks  &  Co 1,120.00 

Smith  &  Robbins 482.50      2,200.00 

E.  R.  Bender 500.00         640.40 

The  inventories  are:  Mdse.  $6,135 ;  Traders'  National  Bank  stock, 
(10  shares)  $1,000;  cash  on  hand  and  in  bank,  $3,924.82 ;  .bills  re- 
ceivable as  per  bill  book,  $5,320.43 ;  bills  payable  as  per  bill  book, 
$2,531.60. 

Formulate  a  journal  entry  thatj  when  posted,  will  change  the 
ledger  to  double  entry  form,  checking  in  the  journal  such  items  as  do 
not  need  to  be  posted.  Give  all  the  figures  by  which  the  result  is 
obtained. 

256. 

T.  F.  Curry  and  W.  J.  Schmitt  are  partners  in  business,  sharing 
equally  in  gains  and  losses.    Their  books  have  been  kept  by  single 
entry,  but  they  desire  to  change  them  to  the  double  entry  method. 
The  following  is  an  abstract  of  their  affairs  at  this  date: 

Assets  and  Liabilities  as  per  Ledger:  T.  F.  Curry,  investment, 
$12,500;  withdrawals,  $2,500;  W.  J.  Schmitt,  investment,  $12,500; 
withdrawals,  $2,000;  sundry  accounts  receivable,  $8,500;  sundry 
accounts  payable,  $6,000. 

Other  assets  and  liabilities  not  in  ledger:  Merchandise  as  per 
inventory,  $18,000;  cash  in  bank,  $5,500;  bills  receivable,  $2,300; 
bills  payable,  $2,000 ;  bank  stock,  $2,000 ;  real  estate  $5,000. 

Determine  the  amount  of  gain  and  loss  of  each  partner  at  this 
date,  and  formulate  proper  journal  entry  for  conversion  of  single 
entry  ledger  into  a  double  entry  ledger. 


H6  PROBLEMS  IN  ACCOUNTING 

257- 

A.  B.,  a  retailer,  whose  books  have  been  kept  by  single  entry 
requests  you  to  install  a  double  entry  system.  The  ledger  contains 
the  following  accounts:  Expense,  $900;  A.  B.'s  drawings,  $3,000; 
customers'  accounts,  $15,000;  creditors,  $4,000.  Upon  inquiry  you 
find  A.  B.  has  cash,  $4,000;  merchandise,  $8,000;  factory  property 
worth  $15,000,  subject  to  a  mortgage  of  $10,000.  Make  the  journal 
entries  necessary  to  change  his  accounts  from  single  to  double  entry. 
You  are  to  use  the  ledger  containing  the  above  named  accounts. 

The  YCX  Co.  takes  a  large  number  of  notes  (bills  receivable) 
from  its  customers,  and  when  in  need  of  funds  discounts  or  sells 
them;  how  may  the  accounts  be  managed  so  as  to  show  the  com- 
pany's liability  as  indorser  on  the  paper  discounted  ? 

258. 

A  promoter  secures  optionslXttpon\ the  plants  of  three  competing 
companies,  A,  B  and  C.  He  proposes  to  organize  the  Doe  Co.  with 
an  authorized  capital  of  $700,000,  of  which  $300,000  is  common  and 
$400,000  is  preferred  stock  each  having  a  par  value  of  $100  a  share. 
His  plan  includes  $150,000  of  4%  first  mortgage  bonds  convertible 
at  the  holders  option  into  preferred  stock  at  105  or  redeemable  at 
the  company's  option  at  no  plus  accrued  interest.  The  companies 
A,  B  and  C  have  the  following  status  respectively,  excluding  cash: 

Assets  Liabilities  Surplus  Deficit          Capital 

A               $171,000  $56,000  $15,000  $100,000 

B                 165,000  80,000  $5,ooo  90,000 

C                 108,000  47,000  6,000  55,ooo 

The  promoter's  options  provide  that  these  companies  are  to  sell 
their  properties  on  the  basis  of  $125,000  to  A,  $100,000  to  B,  and 
$75,000  to  C,  payable  Y^.  in  cash,  y2  in  preferred  stock  and  ^  m 
bonds  of  any  company  that  may  be  formed  to  take  over  these  prop- 
erties. It  is  also  agreed  that  if  the  promoter  elects  to  exercise  his 
options  and  acquire  the  properties  covered,  the  liabilities  of  each 
company  are  to  be  assumed  by  the  purchasing  company. 

M,  N  and  O  incorporate  the  Doe  Co.  as  outlined  above,  each 
subscribing  for  10  shares  of  common  stock,  paying  50%  in  cash  so 
as  to  qualify  as  incorporators  and  directors.  At  the  first  director's 
meeting  the  bonds  are  authorized  and  the  Doe  Co.  through  its 
directors  agrees  with  the  promoter  to  take  over  his  options,  issuing 


PROBLEMS  IN  ACCOUNTING  117 

in  payment  thereof  to  him  $250,000  in  common  stock  of  the  company. 
It  is  also  agreed  in  consideration  of  such  stock  that  the  promoter 
is  to  furnish  $100,000  in  cash.  To  provide  additional  working 
capital  and  to  assist  in  its  financing  the  promoter  donates  to  the  com- 
pany $75,000  in  common  stock.  The  Doe  Co.  takes  over  the  prop- 
erty and  liabilities  of  the  other  corporations.  $100,000  of  the  pre- 
ferred stock  is  underwritten  by  bankers  at  no  in  cash  with  a  bonus 
of  one  share  of  common  with  every  four  shares  of  preferred.  To  be 
able  to  fund  a  part  of  its  assumed  liabilities  the  Doe  Co.  sells  the 
balance  of  its  bonds  at  90  giving  a  bonus  to  the  purchaser  of  20% 
in  common  stock  and  applies  the  proceeds  to  pay  off  the  liabilities 
assumed.  As  the  result  of  various  bargains  other  creditors  agree  to 
take  $75,000  of  the  common  stock  available  for  issue  and  sale  at  an 
average  price  considering  the  various  stock  bonuses  given  of  80. 
All  common  stock  has  been  issued.  $50,000  of  the  bonds  are  con- 
verted after  issuance  into  preferred  stock  at  105,  the  holder  paying 
the  premium  in  cash  to  the  company.  The  directors  then  exercise 
their  option  and  retire  and  cancel  $25,000  of  the  company's  bonds 
at  no  paying  the  premium  in  cash,  balance  in  preferred  stock 
(Neglect  accrued  interest.) 

Draft  Journal  entries  to  give  effect  to  the  above  facts  upon  the 
books  of  the  Doe  Co.  and  present  a  properly  drawn  Balance  sheet 
showing  the  position  of  the  company,  after  these  entries  have  been 
posted. 

259. 

A  corporation  is  organized  to  conduct  a  manufacturing  business 
with  an  authorized  capital  of  $20,000  divided  into  200  shares  of  the 
par  value  of  $100,  of  which  150  shares  shall  be  preferred  and  50 
shares  common  stock.  The  corporation  purposes  to  issue  $5,000  in 
consolidated  mortgage  bonds  to  be  used  toward  the  purchase  of 
sundry  properties.  The  amount  of  the  paid  up  capital  with  which 
the  corporation  begins  business  is  $500,  being  the  proceeds  of  sub- 
scription of  5  shares  preferred  stock. 

To  carry  out  the  purpose  of  said  corporation,  the  real  estate, 
water  power,  machinery,  goodwill,  etc.,  of  certain  existing  corpora- 
tions has  been  purchased  at  an  appraised  value  of  $20,000,  viz.  Star 
Mfg.  Co.,  $2,000;  Earl  Mfg.  Co.,  $3,000;  Ajax  Mfg.  Co.,  $5,000; 
Acme  Mfg.  Co.,  $6,000;  Coe  Mfg.  Co.,  $4,000.  In  payment  full  paid 
stock  and  bonds  have  been  issued  at  par  on  a  basis  of  60  per  cent 
in  preferred  stock,  20  per  cent  in  common  stock  and  20  per  cent 
in  bonds. 


n8  PROBLEMS  IN  ACCOUNTING 

Material  and  supplies  are  to  be  paid  for  in  cash  when  their  value 
is  determined. 

Formulate  the  entries  necessary  to  open  the  books  of  the  new 
corporation. 

260. 

What  proportion  of  $15,000 — commission  paid  for  negotiating  a 
sale  of  bonds  whose  par  value  was  $1,000,000 — interest  5% — and 
which  were  sold  at  90  to  run  10  years — should  be  treated  as  an  asset 
at  the  end  of  the  first  year  ?  Give  reasons. 

261. 

B  began  business  a  year  ago  keeping  only  single  entry  books. 
He  started  with  the  following  assets  and  liabilities : 

Cash   $50,000     Mortgages    (Land) $50,000 

Land 20,000     Accounts  Payable 500 

Patents 10,000     Bills      Payable 2,000 

Notes  Receivable 10,000 

Bonds  5,ooo 

Accounts  Receivable. . .  .     1,000 

Today  his  assets  and  liabilities  are  as  follows: 

Cash   $  5,000     Bonds  $10,000 

Land  and  Buildings 30,000     Accounts  Payable 2,000 

Patents    8,000     Accrued  Wages 500 

Trade  Marks 5,000                             Note. 

Notes  Receivable 15,000             (B's  drawings,  $1,000.) 

Accounts  Receivable.  . .  .  20,000 

Material  and  Supplies.  . .  12,000 

Finished   Goods 10,000 

Prepare  a  tabulation  showing  what  the  profits  were  and  what 
became  of  them. 

262. 

The  balance  sheet  of  a  firm  is  summarized  as  follows : 

ASSETS. 

Cash,  stock,  and  accounts  receivable $67,500 

Manufacturing    Plant I5>o°° 

Total  $82,500 


PROBLEMS  IN  ACCOUNTING  119 

LIABILITIES. 

Notes  and  accounts  payable $49,500 

Capital    37>5oo 

Total  $87,000 

Would  you  consider  this  firm  insolvent?  Give  reasons  for  your 
answer. 

263. 

The  New  York  Steamship  Company  issued  income  debentures 
for  $500,000,  the  deed  of  trust  providing  that  an  amount  equal  to 
5%  of  the  total  issue  be  set  aside  out  of  the  earnings  of  the  com- 
pany each  year  for  the  retirement  of  the  bonds. 

December  31,  1900,  the  assets  of  the  company  amounted  to 
$1,200,000,  the  capital  stock  of  $500,000,  other  liabilities  $100,000, 
profits  for  the  year  $70,000. 

The  company  received  $30,000  from  the  government  for  trans- 
portation of  troops  during  time  of  war,  which  amount  did  not  appear 
on  the  books  as  an  asset,  the  cost  of  transporting  the  troops  having 
been  charged  to  profit  and  loss  account  in  prior  years. 

Explain  by  journal  entries  (a)  how  the  redemption  fund  for  the 
retirement  of  the  income  debentures  should  be  treated,  (b)  how  the 
income  of  $30,000  for  transportation  should  be  treated. 

264. 

A  manufacturer  makes  extensive  investments  in  stocks  and  bonds, 
buying  and  selling  from  time  to  time  as  the  market  conditions  war- 
rant and  clearing  all  such  transactions  through  his  regular  books  of 
account.  How  should  such  transactions  be  isolated  from  his  manu- 
facturing operations  and  what  books  and  accounts  should  he  employ 
to  record  the  details  of  the  principal  and  income  from  such  invest- 
ments ? 

265. 

Draw  up  a  form  for  the  record  of  household  accounts  that  may  be 
used  as  a  combined  cashbook,  journal  and  ledger.  Give  the  headings 
and  provide  five  distribution  columns  for  expenditures,  and  also  col- 
umns for  controlling  accounts  for  both  accounts  payable  and  accounts 
receivable. 

266. 

An  inventory  of  a  going  concern,  taken  under  your  supervision 
and  direction  and  requiring  two  weeks  to  complete,  is  commenced  one 


120  PROBLEMS  IN  ACCOUNTING 

week  prior  to  the  close  of  the  fiscal  year.    How  would  you  instruct 

(a)  as  to  the  general  care  and  custody  of  stock  under  inventory  and 

(b)  as  to  the  recording  of  incoming  and  outgoing  goods  during 
stock  taking  ? 

267. 

You  are  asked  the  following  question  : 

"It  costs  $15.00  per  thousand  to  manufacture  a  certain  article 
laid  down  in  the  stock  room.  This  cost  includes  labor,  material  and 
manufacturing,  overhead.  The  sales,  advertising,  and  shipping 
expense  is  15%  of  sales,  what  is  the  relation  between  cost  of  manu- 
facture and  cost  of  sales  ?" 

(a)  What  is  your  answer  ? 

(b)  Prepare  a  formula  for  the  computation  of  the  relation  be- 
tween cost  of  manufacture  and  cost  of  sales. 


What  entry  should  be  made  on  the  books  of  a  company  of  goods 
sent  out  on  consignment?  When  the  goods  have  been  sold  and  the 
consignee  sends  in  his  account  sales,  what  entries  should  be  made  ? 

269. 

A  company  manufacturing  a  proprietary  article  offers  certain 
premiums  to  its  customers  on  the  return  of  its  wrappers,  the  premium 
offers  being  indicated  in  a  published  schedule.  At  the  time  of  mak- 
ing out  the  annual  balance  sheet  only  a  few  of  the  premiums  have 
been  distributed.  How  should  this  matter  be  treated  in  the  balance 
sheet? 

270. 

The  ledger  of  a  corporation  has  an  account  entitled  "First  Mtg. 
Bond  Script",  showing  a  credit  balance  of  $967.54.  What  does 
this  balance  represent,  and  how  would  you  treat  the  item  in  the 
balance  sheet? 

271. 

State  the  full  procedure  leading  up  to  the  entry  of  the  following 
transactions  in  the  shares  of  a  corporation,  the  par  value  of  which 
is  $100  : 

April  5,  1901.  James  Williamson  receives  certificate  for  $75  for 
loo  shares  full  paid. 


PROBLEMS  IN  ACCOUNTING  121 

May  3,  1901.  James  Williamson  requests  a  transfer  to  George 
T.  Jenkins  of  30  of  his  100  shares. 

Outline  a  form  of  stockholders'  ledger  and  properly  enter  the 
above  items  therein. 

272. 

The  Iron  City  Nut  &  Bolt  Company  is  financially  embarrassed. 
At  a  meeting  of  the  stockholders  it  is  decided  to  raise  additional  cap- 
ital by  the  issue  of  5,000  shares  of  6%  Preferred  Stock,  par  $100. 
This  stock  is  sold  on  the  open  market  at  an  average  price  of  103. 
Give  the  journal  entries. 

273. 

Three  manufacturers,  each  having  an  independent  business  and 
wishing  to  effect  a  consolidation  of  their  respective  interests,  organize 
the  United  States  Manufacturing  Company,  a  corporation  with  an 
authorized  capital  stock  of  $1,500,000,  half  common  and  half  pre- 
ferred. They  sell  to  the  new  corporation  all  of  their  real  estate, 
buildings,  machinery,  tools,  fixtures,  merchandise  and  supplies,  in 
consideration  of  $1,500,000,  and  agree  to  accept  in  payment  $750,000 
preferred  and  $750,000  common  stock  of  the  new  corporation.  The 
three  vendors  then  donate  to  the  treasury  of  the  corporation  $150,000 
of  preferred  and  $150,000  of  common  stock  to  provide  for  working 
capital.  The  company  sells  $100,000  of  its  preferred  stock  in  the 
treasury  for  80%  cash,  giving  a  bonus  to  the  purchaser  of  20%  in 
common  stock. 

For  the  purpose  of  raising  additional  funds  for  improvements  and 
additions  to  plant,  the  corporation  mortgages  its  real  estate  and 
buildings  as  security  for  an  issue  of  bonds  amounting  to  $250,000. 
These  bonds  the  company  sells  to  bankers  at  90%,  giving  as  a  bonus 
10%  of  preferred  stock  and  20%  of  common  stock. 

Draft  entries  to  express  correctly  the  above  transactions  on  the 
books  of  the  corporation,  and  prepare  a  statement  of  assets  and  lia- 
bilities of  the  company. 

274. 

A  corporation  issues  $300,000  of  stock  in  exchange  for  a  manu- 
facturing plant  and  supplies,  with  the  understanding  that  one-half  of 
the  stock  is  to  be  donated  back  to  the  corporation.  After  the  con- 
summation of  this  agreement  $100,000  of  the  stock  is  sold  at  80  for 
cash.  Next,  $50,000  of  the  stock  issued  to  the  original  owners  of  the 
plant  is  repurchased  at  70  and  held  for  future  sale.  Show  the  bal- 
ance sheet  after  these  transactions. 


122  PROBLEMS  IN  ACCOUNTING 

275- 

A  corporation  receives  subscriptions  for  stock  to  the  amount  of 
$100,000  at  120.  The  amount  is  paid  in  cash.  What  entries  should 
be  made  for  these  transactions  ? 

Another  $100,000  is  subscribed,  to  be  paid  in  five  instalments,  at 
120.  When  two  of  the  instalments  have  been  paid,  what  entries 
should  have  been  made  for  the  transactions  of  this  subscription? 

A  financial  panic  occurs  and  the  last  instalment  is  defaulted  by  the 
subscribers  to  the  amount  of  one-twentieth  of  the  total  subscription, 
a  default  of  $1,200  (thus  forfeiting  $4,000  of  par  value  and  $800  of 
premium  already  paid  in  by  them  in  instalments),  but  the  other  sub- 
scriptions are  paid  and  the  stock  is  issued.  What  entries  should 
record  all  these  events  ? 

Show  the  final  trial  balance  for  the  result  of  all  these  entries. 


A  village  makes  the  following  appropriations  for  the  year  1915 
and  levies  a  tax  therefor: 

Bond  redemption   $2,000 

Bond  interest   800 

Salaries    2,700 

Contingent  expenses   5°° 

Police     1,600 

Poor , 750 

Care  of  streets 1,200 

Lighting 950 

Education    3,000 

(1)  Outline  an  entry  that  will  properly  open  the  village  books. 

(2)  How  will  collection  of  taxes  be  recorded? 

(3)  How     will     disbursements     against     appropriations     be 
recorded  ? 

(4)  WTiat  will  the  balance  of  the  accounts  at  any  date  show  ? 

277. 

A  municipality  sells  improvement  bonds,  the  proceeds  forming 
a  fund  out  of  which  is  defrayed  the  cost  of  certain  improvements, 
the  total  expense  of  these  improvements  being  .assessed  on  the 
property  benefited.  Bond  redemptions  are  to  be  made  out  of  assess- 
ments collected.  What  accounts  would  be  required  for  recording  the 
foregoing  transaction,  and  for  what  items  would  these  accounts 
be  debited  or  credited? 


PROBLEMS  IN  ACCOUNTING  123, 

278. 

Highland  county  undertakes  two  public  improvements,  viz.  :  a 
road  estimated  to  cost  $50,000,  and  a  sewer  estimated  to  cost  $40,- 
ooo.  The  work  is  to  be  paid  for  out  of  proceeds  of  county  bonds 
falling  due  at  various  dates  and  redeemable  from  assessments  levied 
against  property  presumably  benefitted,  to  the  amount  of  the  actual 
cost  of  the  work  and  incidental  charges  when  these  are  determined. 

Bonds  to  the  above  amounts  are  accordingly  sold,  realizing  a 
premium  of  i%,  which  is  to  be  added  to  the  respective  funds;  the 
cost  of  the  two  undertakings  when  completed  is  $50,000  and  $40,500 
respectively,  for  which  assessments  are  accordingly  levied. 

Assessments  are  subsequently  collected  as  follows:  For  roads 
$30,200,  with  accrued  interest  of  $1,310;  for  sewers,  $29,400,  with 
accrued  interest  of  $1,250.  The  interest  in  each  case  goes  into 
the  related  funds.  Road  bonds  of  the  par  value  of  $20,000  and 
sewer  bonds  of  the  par  value  of  $15,000  mature  and  are  redeemed. 

Frame  journal  entries,  post  to  ledger  accounts,  and  prepare  a 
trial  balance  from  which  the  status  of  the  county  debt  and  of 
the  funds  and  assessments  at  the  conclusion  of  the  above  transac- 
tions can  be  ascertained  and  determined. 


The  books  of  a  manufacturing  concern,  operating  under  a  sys- 
tem of  cost  accounts,  shows  the  following  conditions  at  the  opening 
of  the  fiscal  year:  Raw  materials  in  storeroom,  $15,621.42;  factory 
pay  roll,  applied  and  distributed  but  not  paid,  2  days,  $831.78; 
partly  manufactured  goods  at  prime  cost,  $63,888.44,  and  the  further 
value  of  $8,037.17,  to  cover  factory  burden,  also  $12,074.92  to  cover 
management  charges;  finished  wares  in  stock  at  total  cost  of  $21,- 
656.01. 

The  financial  operations  during  the  ensuing  year  include:  Pur- 
chases of  raw  materials  $80,416.45;  factory  pay  rolls  $125,793.90; 
factory  expense,  including  wages  not  applied  to  cost  accounts,  $24,- 
846;  management  expenses,  $38,100;  interest  paid  on  loans  $1,200;. 
income  from  investments,  $5,004. 

The  manufacturing  operations  during  the  same  year  comprehend: 
Raw  materials  issued  on  requisition  for  consumption,  $79,820.34; 
wages,  applied  and  distributed  to  manufacturing  cost,  $120,250.40; 
and  to  factory  expenses  $5,959.39,  included  in  the  sum  stated  irr 
the  preceding  paragraph. 


124  PROBLEMS  IN  ACCOUNTING 

Finished  goods  transferred  from  factory  to  warerooms,  at  prime 
cost,  covering  materials  $78,542.58,  and  labor  $118,333.75. 

The  trading  operations  during  the  same  year  comprehend:  Cost 
of  goods  sold  $251,949.90;  proceeds  from  goods  sold  $302,339.88. 

At  the  close  of  the  year  the  partly  completed  goods  included,  in 
addition  to  prime  cost,  the  further  elements  of  value  to  cover  factory 
and  management  expenses  in  the  amounts  respectively  of  $8,439.02 
and  $12,678.66,  and  the  factory  pay  roll  for  three  days,  amounting 
to  $1,247.67,  which  has  been  applied  and  distributed,  though  not 
-due  till  the  close  of  the  current  work. 

The  basis  of  the  apportionment  of  On  Cost  or  Overhead  Charges 
was  as  follows :  Factory  expense,  20%  to  materials  and  So% 
to  labor;  management  expenses,  30%  to  materials  and  70%  to 
labor. 

The  transactions  of  the  pervious  year  in  round  amounts  were 
used  in  calculating  the  current  year's  apportionments,  viz :  Materials, 
-$75,000;  labor,  $115,000;  factory  expense,  $24,000;  management  ex- 
pense, $36,000. 

Open  the  general  ledger  accounts  that  control  the  cost  accounts ; 
show  the  operation  of  each  and  the  net  profits  resulting;  also  cal- 
culate the  percentage  to  be  added  to  each  $i  of  material  and  of 
labor  to  give  the  total  cost. 

280. 

A  manufacturing  company  after  erecting  and  equipping  its 
factory,  placing  orders  for  materials  and  hiring  a  working  force  of 
skilled  mechanics,  commences  operations.  In  addition  to  the  finan- 
cial accounts,  arrangements  have  been  made  to  conduct  cost  ac- 
counts from  the  outset,  and  the  current  details  thereof  grouped  under 
Account  Titles  and  collated  upon  "forms"  show  the  following  ac- 
tivities : 
Form  I  Receiving  Sheet. 

Raw  materials  received  into  storeroom $  7,701.37 

Form  II     Consumption  Sheet — Materials 

Raw  materials  consumed 6,651.69 

Form  III     Consumption  Sheet — Manufacturing 

Partly  made  goods  consumed,  combining  values  of 

materials    3,225.82 

and  of  labor 3,106.26 

Previously  expended,  and  to  which  further  material  and 
labor  were  added. 


PROBLEMS  IN  ACCOUNTING 


125 


Form  IV     Production  Sheet. 

Manufactured  product,  combining  values  of  material. .     9,877.51 

and  of  labor 13,127.13. 

As  per  manufacturing  reports,  discharging  requisitions 
collated  on  forms  II  and  III. 

Form  V     Cost  Sheet. 

Finished  wares  transferred  from  factory  to  warehouse, 

carrying  prime  cost  of  materials 5,890.69 

and  of  labor 8,875.04 

Adding  further  to  the  materials  cost  $353.44  and 
$828.69,  and  to  the  labor  cost  $1,331.26  and  $1,775  f°r 
factory  expenses  and  management  expenses  respec- 
tively in  each  instance. 

Form  VI     Disposition  Sheet. 

Total  cost  of  finished  wares  sold 14,827.84 

Proceeds  of  sales 17,145.40 

The  register  of  manufacturing  reports  shows  total  application 
of  direct  labor  to  cost  in  the  amount  of  $10,020.87,  and  the  payrolls 
show  expenditure  for  labor  in  the  amount  of  $10,466.16. 

Only  requisitions  discharged  by  manufacturing  reports  collated 
on  the  Consumption  Sheets  for  credit  to  accounts  in  the  Materials 
and  Manufacturing  Ledgers. 

The  medium  for  posting  the  charges  to  finished  wares  accounts 
and  the  offsetting  credits  to  manufacturing  accounts  is  the  Cost 
Journal. 

All  materials,  manufacturing  and  finished  wares  accounts  carry 
units  and  price  in  each  specific  account,  but  only  aggregates  or 
controlling  accounts  are  here  dealt  with. 

Frame  Consumption  Journal  and  Cost  Journal  entries.  Show 
the  subjects  and  the  amounts  of  charges  and  credits  to  the  .several 
ledgers  in  the  cost  system,  also  the  charges  and  credits  to  General 
Ledger  accounts  from  data  developed  by  the  Cost  records. 

281. 

How  would  you  proceed  to  ascertain  the  net  sales,  purchases, 
expenses  and  net  profits  of  a  business  for  a  given  period  when  the 
ledgers,  sales  books,  purchase  books  and  supporting  documents  have 
been  destroyed  by  fire,  and  the  only  records  available  are  the  cash- 
book,  bank  pass  book  and  book  of  monthly  balances,  the  latter  con- 
taining all  the  ledger  balances  and  annual  balance  sheets  ?  It  is  to  be 
understood  that  no  unusual  transactions  had  taken  place.) 


126  PROBLEMS  IN  ACCOUNTING 

282. 

A  fire  in  the  office  of  a  firm  of  traders  partly  destroyed  its 
books  of  account  that  had  been  fully  posted  in  anticipation  of  prov- 
ing their  correctness.  The  following  ledger  accounts  were  found 
to  be  legible: 

Purchases  net $23,000 

Cash  discounts  lost 320 

Cash  discounts  gained 1,150 

vSales  net 18,000 

Bills    receivable n,ooo 

Upon  inquiry  the  bank  balance  was  ascertained  43,000 
Bills    receivable   had   been   discounted   at   the 

bank,  amounting  to 15,000 

An  inspection  of  the  checks  paid  by  the  bank 
showed  amount  paid  creditors,  including 
$20,000  notes  payable 33,ooo 

A  balance  sheet  prepared  at  the  last  closing  of  the  books  and 
containing  the  following  items  was  produced  by  one  of  the  partners : 

Cash  $20,000     Accts.     Pay 10,000 

Accounts    Rec 42,000     Notes    Pay 20,000 

Loans     Rec 8,000     Mortg.    Pay 12,000 

Real  Estate 30,000     Capital   84,000 

Notes   Rec 14,000 

Inventory    12,000 

The  firm  stated  that  the  real  estate,  loans  receivable,  and  mort- 
gages payable  remained  as  shown  in  the  balance  sheet. 

An  inventory  of  goods  in  storage  amounted  to  $15,000. 

With  this  information  open  a  new  set  of  books  showing  the 
position  of  the  firm  at  the  time  of  the  fire. 


283. 

A  fire  insurance  company  began  business  with  a  capital  of 
$400,000  and  a  surplus  of  $400,000  paid  in  cash.  At  the  end  of  the 
year  its  books  show  the  following: 

Income:  gross  premiums  $707,135.84  less  re-insurance  rebates 
and  return  premiums  $94,971.27;  interest  on  mortgage  loans,  re- 
ceived in  cash  $6,803.65  and  interest  accrued  and  due  $1,349.87;  in- 
terest on  collateral  loans,  received  in  cash  $1,014.44  and  accrued 
and  due  $4,228.32;  interest  on  bonds  and  dividends  on  stocks,  re- 
ceived in  cash  $16,841.65  and  accrued  and  due  $186;  profit  on  sale 
of  assets  $4,204.52. 


PROBLEMS  IN  ACCOUNTING  127 

Outgo:  Gross  amount  paid  for  losses  $115,048.22,  less  salvages 
$14,900;  gross  claims  for  losses  in  process  of  adjustment  $32,263.83 ; 
gross  claims  for  losses  resisted  $8,618.50,  less  due  and  accrued  for  re- 
insurance $11,412.71 ;  commissions  or  brokerage  paid  in  cash  $123,- 
544.19,  and  due  or  to  become  due  $9,519.24;  salaries,  fees,  and  all 
other  charges  of  officers,  clerks  and  other  employees  paid  $24,755.68; 
rents  paid  $4,224.93 ;  taxes,  licenses,  insurance  department  fees  paid 
$9,764.99;  all  other  expenses  paid  $20,820.12;  due  and  accrued  ex- 
penses $621.29;  due  and  accrued  return  premiums  $9,597.36;  due  and 
accrued  re-insurance  premiums  $6,856.48.  The  market  value  of 
securities  owned  was  $20,625  IGSS  than  their  cost. 

The  risks  in  force  at  the  end  of  the  year  carried  premiums  of 
$580,867.07,  of  which  sum  $424,747.65  was  the  aggregate  premiums 
on  risks  running  one  year  or  less,  and  $156,119.42  was  on  risks  run- 
ning more  than  one  year,  the  unearned  premiums  on  which  amounted 
to  $111,950.46. 

Set  up  the  income  accounts,  making  due  allowance  for  unearned 
premiums. 

284. 

Robert  Adams  and  William  Stevens  are  equal  partners.  On  the 
night  of  July  3  their  stock  and  fixtures  were  destroyed  by  fire.  A 
trial  balance,  which  Adams  had  at  his  home,  showed  the  following 
condition  of  the  ledger  at  the  close  of  business,  June  3Oth : 

Robert  Adams  $      600.00    $  5,45O-OO 

William  Stevens 600.00        7450-00 

Cash    3,309.00 

Fixtures    1,500.00 

Merchandise  Purchases   32,600.00 

Merchandise  Sales 24,800.00 

Notes  Receivable 1,000.00 

Notes  Payable 4,000.00 

Interest   120.00             50.00 

Expense 780.00 

Customers 4,500.00 

Creditors 3>259-°° 


$45,009.00    $45,009.00 

The  property  is  fully  covered  by  insurance.  The  insurance  com- 
pany, for  the  purpose  of  estimating  the  value  of  the  merchandise 
destroyed,  has  agreed  to  allow  35  per  cent,  as  the  average  gross  gain 


128  PROBLEMS  IN  ACCOUNTING 

on  the  sales  and  to  pay  66^3  per  cent,  on  the  value  of  the  fixtures  as 
shown  by  the  ledger.  On  the  basis  of  this  agreement,  state  the  result 
of  the  business  and  the  capital  of  each  partner. 


The  Richardson  Engraving  and  Printing  Company  has  an 
authorized  capital  stock  of  $50,000.00,  owned  by  William  Richard- 
son, $10,000.00;  Silas  Johnson,  $15,000.00  and  Thomas  Acton, 
$25,000.00. 

The  plant  was  destroyed  by  fire  September  23,  1908.  All  the 
books  and  records  were  saved  except  the  sales  records,  which  were 
not  written  up  for  September.  The  insurance  companies  paid  $28,- 
ooo.oo  on  the  plant  and  $7,000.00  on  the  stock,  which  was  distributed 
to  the  stockholders  as  received  in  proportion  to  their  holdings.  Cash 
was  received  from  September  sales  amounting  to  $13,500.00.  On 
September  30  the  trial  balance  disclosed  the  following  condition  : 

Capital  Stock  ........  (v^/TX  $  50,000.00 

Stock  on  Hand  June  I,  1908.$     8,750.00 
Plant    ....................     30,000.00 

Accounts  Receivable  .......     19,640.00 

Accounts  Payable  ..........  12,590.00 

Reserve  for  Bad  Debts  ......  1,250.00 

Insurance  Adjustment  ......  28,000.00 

Cash  .....................       3,900.00 

Engraving  ................  77,600.00 

Printing  ..................  99,350.00 

Merchandise  Purchases  .....     58,800.00 

September  Sales,  not  allocated  24,175.00 

Wages   ...................    130,180.00 

Rent  .................  ----       1,800.00 

Salaries   ..................       5,750.00 

Profit  and  Loss  Surplus  .....  855.00 

William  Richardson  ........       7,000.00 

Silas  Johnson  .............      10,500.00 

Thomas  Acton  ............      17,500.00 


$293,820.00    $293,820.00 

The  accounts  receivable  realized  $18,320.00,  and  the  liquidation 
expenses  were  $1,850.00.  The  stockholders  turned  in  their  stock  for 
cancellation  and  received  their  proportionate  amount  of  cash.  Pre- 
pare journal  entries  closing  the  books  of  the  corporation  and  a  profit 
and  loss  account. 


PROBLEMS  IN  ACCOUNTING  129 

286.  4 

A  firm  manufacturing  but  one  grade  of  cloaks,  insured  against 
burglary,  claims  to  have  been  robbed  on  the  night  of  September  10. 
The  proof  of  the  loss,  filed  by  the  insured,  contains  two  items  for  600 
cloaks,  $12,000,  and  silk,  1,000  yards,  $1,500. 

An  inventory  of  stock  on  hand,  consisting  of  cloaks,  cloth  and 
silk,  had  been  taken  January  i,  amounting  to  $118,500,  the  particulars 
of  which  have  been  lost  or  destroyed. 

An  analysis  of  the  firm's  books  produced  the  following  informa- 
tion: 

Purchases  of  cloth,  37,500  yards  at  $i  ; 
Purchases  of  silk,     10,000  yards  at  $2  ; 

6,000  cloaks  were  manufactured,  consuming  40,000  yards  of  cloth 
and  10,000  yards  of  silk.  9,000  cloaks  were  sold  'between  January  I 
and  September  10. 

Cost  of  sales,  per  cloak,  for  material  .............  $10 

Cost  of  sales,  per  cloak,  for  labor  and  sundries  ----     7 

$17 
Inventory,  September  n  :    2,500  cloaks  at  $17. 

12,500  yards  cloth  at  $i. 
5,000  yards  silk  at  $2. 

Prepare  a  report  proving  or  disproving  the  claim. 

287. 

Three  months  after  the  close  of  a  fiscal  year  you  are  requested 
to  audit  a  set  of  books  to  the  end  of  the  fiscal  year.  How  do  you 
ascertain  if  the  cash  called  for  by  the  books  was  actually  on  hand 
and  in  the  bank? 

288. 


You  are  asked  to  test  the  correctness  of  a  set  of  books  kept  by 
single  entry  by  applying  the  double  entry  system  to  the  entries  made. 
What  would  you  do,  without  writing  a  new  set  of  books.  Take  as  a 
basis  the  following  ledger  accounts  : 

Dr.  John  Doe  Cr. 

1913  J9i3 

Jan.    2  Balance  .........  $1,000      Feb.  2  Cash  ............  $  600 

20  Mdse  ............      500                   Discount  ........  12 

Returns  .........  400 


130  PROBLEMS  IN  ACCOUNTING 

Richard  Roe 

Jan.  25  Freight  charges,.  .$   200     Jan.  20  Mdse $1,000 

Feb.  2  Acceptances   1,500 

2  Mdse.  returned-.      300 

289. 

The  "balance  of  cash  on  hand  at  the  date  of  audit  according  to  the 
cashbook  and  ledger  is  $15,906.27;  the  bank  passbook  on  the  .same 
date  shows  a  balance  of  $16,527.02.  Which  amount  should  appear  on 
the  balance  sheet  ?  Why  ? 

290. 

Given  the  following  reconciliation  of  cash  at  the  close  of  an  audit, 
state  categorically  how  it  may  be  verified : 

June  30,  cash  on  hand  as  per  cash  book $8,549.17 

Balance  as  per  bank  book  at  close  of  business.  .$16,549.72 
Add  check  of  J.  B.  Jones,  not  deposited 1,450.00 


17,999.72 
Deduct  checks  drawn,  not  presented 10,154.29 


7^4543 
Cash  in  drawer 703.74      8,549.17 


,  291. 

You  are  called  in  to  examine  the  books  of  a  firm  whose  book- 
keeper and  cashier  has  absconded.  He  is  known  to  be  an  embezzler 
to  the  amount  of  at  least  $2,000.  The  books  have  been  kept  by 
double  entry  and  are  apparently  correct.  How  would  you  proceed  to 
determine  the  total  amount  of  the  embezzlement  ?  Mention  the  dif- 
ferent methods  that  the  embezzler  might  have  used  to  hide  his  steal- 
ings. 

292. 

A,  the  party  of  the  first  part,  enters,  March  i,  on  the  perform- 
ance of  a  contract  for  $50,000,  payable  in  two  installments  of  $25,000 
each,  the  first  of  which  is  due  on  completion  of  a  specific  part  of  the 
work,  but  subject  to  10%  to  be  retained  by  the  party  of  the  second 
part  as  security  for  the  continuation  of  the  undertaking ;  the  second, 
together  with  the  security  retained  as  aforesaid,  is  to  be  paid  on 
final  acceptance  of  the  completed  work. 


PROBLEMS  IN  ACCOUNTING  131 

A  has  a  capital  of  $4,000  available  for  the  payment  of  labor, 
which  proves  insufficient.  He  therefore  takes  in  as  associates  on 
April  i  B,  who  contributes  $3,000,  and  C  who  contributes  $1,000, 
B  and  C  to  share  profits  in  the  proportion  of  ^  and  ^  respectively, 
and  to  receive  interest  on  capital  at  6  per  cent  per  annum. 

The  first  installment  of  the  contract  falls  due  and  is  paid  on  May 
i,  at  which  date  there  had  been  expended  by  the  contractors  for 
labor  and  incidentals  $7,502  and  obligations  for  material  and  supplies 
furnished  on  credit  had  been  incurred  and  were  outstanding  to  the 
account  of  $13,900,  of  which  all  but  $1,500  are  forthwith  settled 
from  the  installment  money. 

On  receipt  of  the  first  installment,  B  and  C  withdraw  their  capi- 
tal and  realize  the  profits  earned  at  the  completion  of  the  first  stage 
of  the  work,  leaving  A  to  continue  alone,  it  being  carefully  estimated 
and  mutually  conceded  that  a  further  outlay  of  $26,158  will  be  suffi- 
cient to  finish  the  work  and  cover  all  reasonable  contingencies. 

Show  by  skeleton  ledger  accounts  the  cash  payable  by  A  to  B 
and  C  respectively  on  their  withdrawal  from  the  partnership,  and 
state  the  resources  and  obligations  that  remain  to  A  on  entering  on 
the  second  part  of  the  work. 

A  and  B  are  partners  trading  under  the  name  A,  B  &  Co.  On 
June  30,  1910,  the  following  balances  appear  upon  their  ledger: 

A  capital  account $7,000 

B  capital  account 5,ooo 

Real  estate 2,200 

Buildings   2,000 

Machinery  and  tools 4,400 

Furniture  and  fixtures 200 

Accounts  receivable 5,ooo 

Cash    700 

Materials  and  merchandise 5>3OO 

Accounts  payable 3>5°o 

Bills  payable 4,800 

Bills  receivable '.  500 

On  this  date  the  business  is  incorporated  as  the  S  Co.,  on  the 
following  plan: 

(1)  Capital  Stock,  150  shares,  $15,000,  $5,000  preferred,  $10,- 
ooo  common. 

(2)  S  Co.  takes  over  the  assets  and  liabilities  of  A,  B  &  Co.  at 
the  book  figures  as  above,  except  (a)  real  estate  of  the  book  value 


1 32  PROBLEMS  IN  ACCOUNTING 

of  $500,  which  is  retained  by  A,  B  &  Co. ;  (b)  the  accounts  receivable 
which  are  taken  over  at  $4,800. 

(3)  S  Co.  pays  A,  B  &  Co.  $3,000  for  the  good  will  of  the 
business. 

(4)  Payments  to  A,  B  &  Co.  are  made  as  follows :  $5,000  in 
first  mortgage  bonds  and  the  balance  in  common  stock. 

(5)  Stock  not  issued  to  A,  B  &  Co.  is  sold  for  cash  to  sundry 
persons  at  par. 

(6)  Real  estate  retained  by  A,  B  &  Co.  is  taken  by  A  from 
the  firm  at  a  valuation  of  $700  and  is  to  be  charged  to  his  capital 
account. 

After  the  completion  of  these  transactions  A  and  B  dissolve 
partnership. 

You  are  asked  to  prepare  (i)  closing  entries  for  the  books  of  A, 
B  &  Co.,  (2)  opening  entries  for  the  S  Co. 

293- 

Some  proprietors  keep  a  private  ledger  of  their  business,  to  which 
bookkeepers  and  clerks  have  no  access.  Explain  the  purpose  of  such 
a  book,  and  show  what  accounts  it  usually  contains  and  how  it  is 
made  to  agree  with  the  general  ledger. 

294. 

The  machinery  used  by  a  firm  has  been  purchased  on  the  instal- 
ment plan,  with  monthly  payments,  and  under  the  stipulation  that  the 
title  shall  pass  only  when  the  last  payment  has  been  made.  At  the 
close  of  the  fiscal  year  there  are  yet  several  payments  to  be  made. 
The  firm  also  pays  a  royalty  on  the  output  of  some  of  the  machines 
secured  on  this  plan.  How  should  the  auditor  in  his  annual  state- 
ment deal  with  the  machinery,  the  instalments  paid,  and  the  royalty  ? 

295. 

A  company  issues  annually  over  10,000  checks  on  three  separate 
banks,  recording  each  one  on  the  check  stub  and  then  transcribing 
each  check  in  detail  on  the  general  cash  book.  Suggest  a  change  in 
method  which  would  facilitate  the  work  and  point  out  advantages 
gained. 

296. 

In  auditing  an  account  the  auditor  finds  that  Robert  Brown  had 
bought  a  bill  of  goods  amounting  to  $500,  payable  on  August  10,  less 
2%.  He  had,  however,  made  payments  thereon  as  follows: 


PROBLEMS  IN  ACCOUNTING 


133 


June    2 $100 

June  15 100 

July     3 loo 

On  what  date  would  he  be  required  to  make  payment  of  the 
remaining  $200  to  entitle  him  to  the  2%  discount  under  the  original 
terms  of  sale  ? 

297. 

A  firm,  having  several  branches,  maintains  an  account  with  each 
branch  in  the  ledger  and  charges  all  such  accounts  with  goods  sent 
the  agents  for  stock.  When  the  inventory  of  stock  is  taken,  the  bal- 
ance of  each  'branch  account  is  treated  as  an  ordinary  Accounts 
Receivable  and  is  included  in  the  general  debts  owing  to  the  firm.  If 
you  see  any  objection  to  this  method  say  how  you  would  deal  with  the 
accounts. 

298. 

A  retail  book-store  agrees  to  deliver  certain  sets  of  books  at  $20, 
on  payment  of  $2  down,  the  purchaser  agreeing  to  make  $3  payments 
for  each  of  the  six  months  next  following.  It  is  expected  that  sales 
on  this  plan  will  aggregate  several  hundred  sets.  Suggest  method  of 
keeping  the  accounts,  so  that  results  may  be  readily  shown. 

399.  3 1 

One  of  the  early  experiences  of  the  firm  of  Gardner  &  Kestin, 
Certified  Public  Accountants,  was  to  make  an  investigation  of  the 
books  and  accounts  of  Evans,  Smart  &  By  ford  (which  firm  had  be- 
come involved  in  business  difficulties  and  was  compelled  to  stop 
payment)  and  to  prepare  from  the  following  data  a  statement  of 
affairs,  accompanied  by  a  deficiency  account:  Unsecured  creditors, 
A  $35,000,  B  $27,500,  C  $26,000,  D  $24,500,  E  $17,500.  F  $15*000 
and  G  $2,000;  creditors  for  rent,  salaries,  etc.  $1,250,  of  which  $750 
was  preferential;  debtors  $42,500,  of  which  $37,500  was  good,  $1,825 
doubtful  (estimated  to  produce  $625)  and  $3,125  bad;  bills  receiv- 
able, H  $3,000,  J  $4,250,  K  $2,500  and  L  $1,500;  land  and  buildings 
$25,000,  plant  and  machinery  $8,500,  stock  on  hand  $5,000,  furniture 
and  fixtures  $1,500,  cash  on  hand  $15,000,  sundry  profits  $37,500, 
sundry  losses  $30,000,  trading  expenses  $17,500.  Evans'  capital 
account  was  $5,000,  Smart's  $3,750,  Byford's  $3,750;  Evans'  draw- 
ings were  $10,000,  Smart's  $15,000,  Byford's  $17,500. 

Show  how  you  would  have  prepared  the  statements  required  had 
you  been  employed  to  do  the  work. 


134  PROBLEMS  IN  ACCOUNTING 

300. 

John  Thompson  exhibits  the  following  'balance  sheet  of  his  busi- 
ness, dated  June  30,  1900: 

Cash   $      750  Sundry  creditors $  6,000 

Book  debts 9,500  Bills  payable 7>5°o 

Stock  on  hand 6,500  Bank  (overdraft) 3,ooo 

Fixtures,  etc 1,750  Balance 2,000 


Total $18,500  Total $18,500 

On  questioning  Thompson  it  was  found  that  he  had  omitted  the 
following  from  his  balance  sheet:  $250  owing  for  rent;  $75  owing 
for  taxes;  $2,500  borrowed  at  5%  from  his  wife  three  years  ago,  no 
payment  having  been  made  on  account  of  either  principal  or  interest ; 
a  draft  for  $500  accepted  by  a  firm  without  consideration,  falling  due 
in  30  days.  His  private  and  household  debts  amounted  to  $600. 

The  item  entered  on  his  balance^ xsheet  as  cash  included  his  per- 
sonal I.  O.  U.'s  for  $600. 

Of  the  book  debts  about  $3,500  might  be  considered  bad  and  the 
rest  good.  The  stock  was  good  except  $1,000  which  would  not  pro- 
duce more  than  $100.  The  fixtures,  if  sold,  would  not  realize  more 
than  $250.  The  only  other  assets  were  household  furniture  worth 
about  $1,250  and  residence  valued  at  $7,500  subject  to  a  first  mort- 
gage for  $5,000  at  4%,  and  also  a  second  mortgage  held  by  his  bank 
as  security  for  overdraft. 

Prepare  a  statement  of  affairs. 

30I> 

Wallace  Hopkins,  while  perfectly  solvent  and  doing  a  profitable 
manufacturing  business,  had  so  tied  up  his  capital  in  plant  and  mate- 
rials that  he  was  unable  to  pay  his  debts  and  was  on  the  point  of 
suspending  for  want  of  funds  to  pay  for  labor,  and  his  creditors  were 
preparing  to  commence  legal  proceedings  to  enforce  a  settlement. 
The  condition  of  his  affairs  at  this  time  was  as  follows : 

Assets  Liabilities 

Plant $25,198     Creditors    $20,230 

Cash   212     Capital   50,000 

Materials,  raw  and  partly  Surplus 4,900 

finished 40,400 

Finished  goods 6,070 

Accts.  Rec 3,250  

$75.130  $75,130 


PROBLEMS  IN  ACCOUNTING 


135 


At  a  meeting  of  the  creditors  he  said  that  while  his  plant  was 
entirely  efficient,  it  was  all  of  special  character  and  would  realize  on 
forced  sale  only  the  value  of  scrap,  that  the  unfinished  goods  would 
require  the  employment  of  skill  and  processes  known  only  to  him, 
and  that  while  forced  suspension  would  yield  to  his  creditors  not 
over  50%,  it  would  ruin  him  absolutely. 

The  creditors  decided  to  advance  him  a  loan  of  $5,000  to  continue 
operations  and  allow  him  additional  credit  for  materials  and  expenses. 
A  trustee  was  appointed  to  see  that  the  proceeds  were  used  solely  for 
recuperation  of  the  business. 

The  subsequent  operations  of  the  trustee  were  as  follows.  Pur- 
chases on  book  account,  charged  to  materials  $5,100,  to  expense 
$12,100;  sales  on  book  account  $57,802;  losses  on  bad  debts  $300; 
cash  receipts  (loan  from  creditors)  $5,000;  settlement  from  debtors 
$58,100;  cash  payments  for  labor  $12,500;  for  expense  $4,350;  for 
plant  $600.  Creditors,  $42,030;  Wallace  Hopkins,  personal  draw- 
ings, $3,000. 

There  remained  raw  materials  $4,000 ;  finished  goods,  $22,388. 

Prepare  (i)  realization  and  liquidation  account,  (2)  trustee's 
cash  account,  (3)  balance  sheet  of  the  estate  as  restored  to  Wallace 
Hopkins. 

302. 

In  the  valuation  of  a  certain  Gas  Light  &  Coke  Company  for 
rate  purposes,  the  appraiser  takes  cost-new  as  the  value  of  the 
physical  property  for  rate  purposes  rather  than  cost-of-reproduction- 
less-depreciation.  He  found  the  cost-new  of  the  physical  property 
to  be  $49,023,947  and  the  existing  depreciation  to  be  $6,786,538. 
The  company  had  a  specific  reserve  of  $1,617,095  for  depreciation. 
The  appraiser  states  that  while  this  amount  is  inadequate,  still  the 
specific  reserve  allotted  to  depreciation  is  largely  a  bookkeeping 
transaction  and  as  it  possessed  other  funds  from  which  amounts 
could  be  transferred  by  book  entry  to  depreciation  reserve  when 
occasion  required,  the  company  should  be  assumed  to  have  a  fund 
adequate  to  meet  existing  depreciation  and  that  therefore,  the  value- 
new  rather  than  the  depreciated  value  should  be  used.  The  appraiser 
says: 

"The  difference  between  the  reproduction  cost  new  of  the  phy- 
sical property  and  its  present  value  is  $6,786,538,  which  represents 
the  estimated  depreciations  through  wear  and  tear  and  obsolescence. 
The  rate  of  return  to  which  the  investor  is  entitled  should  be  applied 
on  the  fair  present  value  of  the  property.  If  the  property  has  depre- 
ciated, and  no  allowance  has  been  made  to  restore  the  capital  so 


136 


PROBLEMS  IN  ACCOUNTING 


consumed,  the  rate  of  return  must  apply  on  the  depreciated  value  of 
the  plant  instead  of  on  the  cost  new.  The  company  in  this  case  has 
charged  operating  expenses  annually  with  an  amount  which  it 
deemed  sufficient  to  offset  the  depreciation.  The  reserve  for  depre- 
ciation on  December  31,  1909,  as  shown  by  the  company's  books,  was 
$1,617,095.  In  some  respects,  the  amount  shown  to  the  credit  of 
such  a  specific  reserve  is  largely  a  bookkeeping  transaction,  the 
important  consideration  in  each  instance  being,  whether  the  com- 
pany actually  possesses  property  which,  if  not  set  aside  for  specific 
depreciation  purposes,  could  be  set  aside  without  doing  violence  to 
any  other  obligation.  This  is  believed  to  be  the  situation  here.  Its 
earnings  have  exceeded,  by  a  liberal  margin,  all  necessary  require- 
ments, but  instead  of  creating  a  reserve  for  depreciation  sufficiently 
large  to  represent  the  estimated  depreciation  of  the  property,  such 
surplus  earnings  have  been  placed  to  the  credit  of  other  accounts 
from  which  they  may  be  transferred  by  book  entry  to  the  deprecia- 
tion reserve  when  occasion  requires/  s  Since  such  assets  are  ample  in 
amount,  the  value  of  the  physical  property  through  the  addition  of 
these  amounts  is  considered  on  the  basis  of  its  cost  new." 

The  following  are  the  balance  sheets  of  this  corporation  about 
the  time  of  this  appraisal : 

Assets  1910  1909 
Real  estate,  franchise  tunnels, 

street  mains,  meters,  serv. 

etc $82,699,338  $79,086,611 

Materials     1,468,1 13  1,433,648 

-(.           Securities    128,459  200,71 1 

Accounts   receivable 1,010,087  1,320,434 

Deposits  with  Agencies 295,155  286,735 

Gas  Bills  Receivable 990,993  922,565 

Bills  Receivable 52,227  52,227 

Cash    4,819,934  3,546,428 

Total    $91,464,306    $86,849.359 

Liabilities                               1910  1909 

Capital   stock $35,000,000  $35,000,000 

Bonded  debt 40,096,000  37,096,000 

Deposits,  security  for  gas  bills       259,615  265,837 

Accounts   payable 1,271,536  92I>547 

Coupons  past  due 295,155  286,735 


PROBLEMS  IN  ACCOUNTING  137 

Bond  interest  accrued 389*525  339>525 

Depreciation  and  Reserves.  .     2,029,195  1,520,767 

Profit  and  loss 12,123,280  11,418,948 


Total    $91,464,306    $86,849,359 

The  above  illustrates  a  common  misunderstanding  as  to  the 
nature  of  the  Depreciation  Reserve. 

(a)  Explain  fully,  (b)  Show  how  this  error  with  respect  to  the 
Depreciation  Reserve  invalidates  the  conclusion  that  in  this  case 
Cost  new  is  the  proper  basis  for  rates. 

303- 

A  real  estate  company  buys  a  tract  of  land  for  $9,500.00  and 
divides  it  into  74  lots.  After  spending  $5,300.00  in  improvements 
the  property  is  estimated  to  be  worth  $25,000.00  in  excess  of  the 
expense  of  selling  it.  Four  corner  lots  are  actually  sold  on  this  basis 
for  a  lump  sum  of  $1,800.  Allowing  $60  for  the  expense  of  selling 
them,  what  profit  is  to  be  written  up  for  the  sale  ? 

304- 

"Where  an  ordinary  bond  is  bought  at  a  premium,  this  is  a  lump 
sum  to  offset  the  receipts  from  future  interest  payments  whose  rate 
is  higher  than  the  market  rate."  Explain  and  illustrate  fully. 

305- 

(a)  "The  cost  of  bonds  bought  at  discount  differs  from  that  of 
bonds  bought  at  a  premium  in  that    there  is    not   the    same    cer- 
tainty of  the  discount  being  eventually  earned  as  of  the  premium 
being  lost." 

(b)  In  commenting  on  the  above  statement,  Dr.  Sprague  says, 
"  'Earned'  and  'lost'  are  not  happy  expressions  here.    The  premium 
is  not  lost  at  maturity,  but  has  gradually  been  refunded  to  us;  and  the 
discount  is  not  earned,  but  gradually  withheld  from  us" 

Illustrate  and  explain  fully  the  italicised  sentence. 

306. 

What  is  the  cost  per  square  foot  per  annum  of  a  station  site 
which  cost  $60  per  square  foot,  allowing  5%  interest  and  taxes  at 
the  rate  of  $15.00  per  thousand  of  actual  value? 


138  PROBLEMS  IN  ACCOUNTING 

Suppose  by  going  4  blocks  out  you  can  get  land  at  $5  per  square 
foot.  The  station  occupies  20,000  square  feet.  What  is  the  differ- 
ence in  cost  per  annum  between  the  two  sites  ? 

307- 

Machine  No.  n. 
Cost  $4,000. 

Scrap  only  sufficient  to  cover  the  cost  of  removal  and  restoring 
floor  conditions. 

Estimated  life,  10  years. 

Interest  rate  5%. 

Insurance  rate  5%  for  a  period  of  10  years. 

Repairs  and  maintenance  $40  per  year. 

What  is  the  machine  rate  per  hour  for  the  above  costs  ? 


"The  relation  of  overhead  charges  to  direct  labor  costs  is  in  no 
sense  a  measure  of  the  efficiency  of  a  plant."  (Evans.) 

1.  Prove  and  illustrate  the  above  quotation. 

2.  Show  that  in  the  light  of  the  above  quotation  the  productive 
process  in  the  form  of  the  job  should  be  taken  as  the  unit  in  cost 
accounting. 

309. 

"Two  main  principles  have  emerged, 

"i.  The  reduction  of  non-productive  work  to  different  classes 
of  'service'  rendered  to  actual  production  ;  and 

"2.  The  grouping  of  all  indirect  expense  into  these  natural 
classes  instead  of  into  purely  accountancy  classifications  such  as  the 
consolidation  of  all  charges  for  depreciation,  for  rent,  for  interest, 
for  repairs,  etc.,  irrespective  of  the  purposes  for  which  these  charges 
were  incurred."  (Church  "Production  Factors,"  p.  113.) 

Explain. 

310. 

"If  low  shop  expense  percentage  is  the  aim,  it  is  easily  accom- 
plished by  not  spending  money  to  bring  the  tool  equipment  up  to  a 
proper  standard."  (Evans,  p.  92.) 

Explain  and  illustrate  the  above  statement. 

How  would  the  inefficiency  of  poor  tool  equipment  be  disclosed 
by  a  cost  system  on  the  production  factor  plan  ? 


PROBLEMS  IN  ACCOUNTING  139 


A  certain  factory  employs  259  men.  The  total  number  of  direct 
labor  hours  for  the  month  of  April  is  48,000  hours  and  the  amount 
of  wages  is  $12,250.  The  total  burden  for  the  month  amounts  to 
$11,000. 

Job  No.  45  is  the  construction  of  a  heavy  machine.  The  direct 
labor  spent  on  it  amounted  to  3,000  hours  with  a  direct  wage  of  $950. 
The  material  entering  into  the  machine  cost  $1,128. 

(a)  What  will  be  the  total  factory  cost  of  the  job  according  to 
the  hourly  burden  plan  and  the  percentage  of  wages  plan? 

(b)  Suppose  the  job  required  the  use  of  three  machines  on 
which  the  rates  are  as  follows  : 

A  —  1,000  hours,  rate  $0.124  per  hour. 
B—   400      "          "      0.152     " 

,200         "  " 


What  would  be  the  total  factory  cost  according  to  this  plan  ? 

(Give  reasons  for  the  differences  in  the  costs  according  to  these 
three  methods  of  distributing  burden.) 

What  possible  conditions  in  the  shop  would  account  for  these 
differences  ? 

312. 

A  concern  is  engaged  in  manufacturing  steel  ranges. 
Cost  of  Steel  Range,  Style  A93. 
Foundry  Department. 

Process  A. 
Labor    .........................  $5.50 

Material   .......................  8.00 

Other  Expenses  .................  6.00 

Capital  used  $7,500  —  2  days.    Market  price  $23.50. 

Process  B.  Process  B1. 

Labor    ..................  $1.80  $0.90 

Material    ................   1.50  1.60 

Other  Expenses  ..........   3.20  3.50 

Capital  $3,000  —  ilA  days.  $5,4OO  one  day. 


140  PROBLEMS  IN  ACCOUNTING 

Assembling. 

Process  C.  Process  C1. 

Labor    $0.70  $0.40 

Material    1.30  1.30 

Other  Expenses 1.20  1.46 

Capital  $900 — H  da.  $2,400 — %  da. 

Sales  Expense  $4.25  Selling  Price  $61.50 

(a)  Would  it  be  better  to  continue  producing  the  castings  made 
by  process  A  or  to  buy  them  ? 

(b)  The  concern  can  use  for  the  second  process  either  Process 
EorB1.    Which  is  preferable? 

(c)  For  the  third  operation,  which  is  preferable,  C  or  C1  ? 

(d)  Work  out  the  cost  of  each  process  and  the  cost  of  the  fin- 
ished article  according  to  all  the  different  combinations  of  processes 
possible. 

313- 

A  certain  railroad,  being  about  to  be  foreclosed  under  a  consoli- 
dated deed  of  trust,  a  committee  of  the  consolidated  bondholders,  the 
members  of  which  were  large  holders  of  stock  and  prior  bonds, 
drafted  "a  plan  for  purchase  and  reorganization,"  effective  Jan.  I, 
1880.  This  provided  that  the  old  stock  should  be  deposited,  and  that 
the  new  company  should  issue  (i)  first  mortgage  6%  bonds  to  be 
used  to  find  the  past  due  and  maturing  interest  on  the  prior  bonds 
and  for  permanent  construction  and  improvement;  (2)  preferred 
7%  stock  to  represent  the  par  value  of  outstanding  consolidated 
bonds;  and  (3)  common  stock  to  represent  the  outstanding  common 
stock.  Holders  of  the  common  stock  were  not  to  be  entitled  to 
.shares  or  to  vote  until  preferred  stock  had  paid  five  successive  an- 
nual dividends  of  7%.  A  reincorporation  was  effected  on  this  basis. 
At  the  end  of  five  years  the  common  stockholders  brought  action, 
setting  forth  that  earnings  and  income  which  had  been  wrongfully 
converted  to  pay  for  improvements  and  extensions,  would,  if  applied 
to  dividends,  have  been  sufficient  to  pay  for  five  successive  dividends 
of  7%  each  on  the  preferred  stock,  and  that  the  common  stock- 
holders were  therefore,  entitled  to  representation. 

The  net  earnings  as  reported  by  the  company  were  as  follows : 

Net  earnings  for  1880 $133,084.69 

"    1881 244,037.94 

"    1882 438,989.89 

"    1883 488,799-13 

"    1884 400,303.40 

"    1885 272,451.77 


PROBLEMS  IN  ACCOUNTING  141 

In  1 88 1  steel  rails  were  laid.  The  cost  of  this,  less  the  value  of 
old  rails  removed  was  $133,779.03,  all  of  which  sum  was  charged  to 
operating  expenses.  In  1882  a  similar  charge  was  made  to  the 
amount  of  $31,224.56.  In  1883,  of  $65,000.00;  in  1884,  $10,000.00; 
in  1885,  $9,996.35. 

In  1881  new  sidings  and  spurs  were  charged  to  operating 
expenses  to  the  amount  of  $45,430.00.  In  1882  the  amount  so 
charged  was  $9,640.00;  in  1883,  $16,960.00;  in  1884,  $11,640.00;  in 
1885,  $5,400.00. 

In  1883  two  steamers  owned  by  the  company  were  enlarged  and 
made  more  efficient,  at  a  cost  of  $40,286.44,  which  was  paid  out  of 
and  charged  to  earnings. 

In  the  spring  of  1884,  $142,000  was  expended  for  8  new  freight 
engines  and  200  coal  cars.  The  funds  for  this  purchase  were  raised 
by  loan,  which  was  paid  off  by  the  company  at  the  rate  of  $3,000.00 
per  month  and  the  sum  so  paid  in  addition  to  interest  on  the  loan  was 
charged  to  operating  expenses  and  withdrawn  from  earnings. 
$15,000.00  was  thus  charged  in  1884  and  $36,000.00  in  1885. 

The  amount  of  preferred  stock  on  which  the  7%  was  to  be  paid 
annually  was  $6,500,000.  Make  out  a  statement  showing  whether  or 
not  the  common  shareholders  were  entitled  to  representation  on 
Jan.  i,  1886. 


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THIS   BOOK 


DEC  34  1937 


« 


.DECJ 


LD  21-95m-7,'37 


C  24512 


UNIVERSITY  OF  CALIFORNIA  UBRARY 


